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Hubertus Bardt / Sebastian Dullien / Michael Hüther / Katja Rietzler IW-Policy Paper No. 6 21. March 2020 For a Sound Fiscal Policy: Enabling Public Investment

Public investment has been badly neglected in Germany over the past two decades, with the result that the public capital stock no longer meets the standards of a modern economy and is inadequate for the challenges that will be posed by demographic change and Germany’s international decarbonization commitments.

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Enabling Public Investment
Hubertus Bardt / Sebastian Dullien / Michael Hüther / Katja Rietzler IW-Policy Paper No. 6 21. March 2020

For a Sound Fiscal Policy: Enabling Public Investment

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German Economic Institute German Economic Institute

Public investment has been badly neglected in Germany over the past two decades, with the result that the public capital stock no longer meets the standards of a modern economy and is inadequate for the challenges that will be posed by demographic change and Germany’s international decarbonization commitments.

In total, the areas of education, transport, communication networks and decarbonisation will require at least an additional €450 billion of public investment or public investment subsidies over the next 10 years, equivalent to approximately €45 billion a year.

While this amount is manageable in overall economic terms, it is unrealistic to suggest that the required investment can be financed entirely through the reallocation of existing funds within the budget. Consequently, the German Constitution’s debt rules should be supplemented by a Golden Rule allowing for borrowing equivalent to the value of the net investment. The leeway offered by mechanisms such as off-budget entities should be utilised until such a rule has been implemented. A sustained reduction in local government debt will also be important in view of the key role played by the municipalities in public investment, especially in transport infrastructure.

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Enabling Public Investment
Hubertus Bardt / Sebastian Dullien / Michael Hüther / Katja Rietzler IW-Policy Paper No. 6 21. March 2020

For a Sound Fiscal Policy: Enabling Public Investment

Download PDF

German Economic Institute German Economic Institute

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The Productivity Effects of Capital Formation in Germany
Michael Grömling IW-Trends No. 2 9. May 2022

The Productivity Effects of Capital Formation in Germany

Despite broad-based digitalisation, productivity advances in Germany in recent years have been considerably lower than in previous decades. This paper conducts a growth accounting which points to steeply declining stimuli from technical progress and especially ...

IW

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Jürgen Matthes IW-Policy Paper No. 1 25. February 2022

Stability instead of government overreach

Contrary to what the German government seems to be aiming for, a reform of the Stability and Growth Pact (SGP) is necessary. The debt reduction rule forces highly indebted euro countries to reduce their debt too quickly and too damagingly for growth.

IW

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