German Economic Institute: For a sound fiscal policy

FOR A SOUND FISCAL POLICY – Make investments possible! Germany faces enormous challenges in modernizing its capital stock. After neglecting public investment over the last two decades, it is now necessary to update the infrastructure and gradually reduce the investment backlog. HUBERTUS BARDT / SEBASTIAN DULLIEN / MICHAEL HÜTHER / KATJA RIETZLER · IW-POLICY PAPER NO. 10 · 18 NOVEMBER 2019 Managing demographic ageing and decarbonising the economy will also require major efforts in the coming years. The infrastructure needs both to be adapted to a post-fossil age and to meet the requirements of an ageing population. The education system also needs investment to deliver significantly better results in the future. New concepts must be developed in order to ensure prosperity in this country. The state plays a key role in all these tasks. It can indirectly stimulate private investment with its own investments, and it can provide favorable conditions and appropriate support measures for private investors.

There is a considerable need for investment which adds up to at least €450 billion in the next ten years. In order to finance this volume of public investment, it is important to remove obstacles in the political decision-making processes and in financial relations between public subsectors. However, these reforms should not question the financial soundness of the state. The state should and can fulfil its central mandate to invest in the public capital stock and to stimulate private investments in a fiscally, economically and environmentally sustainable manner. A path is presented here that is constitutional and addresses both the temporal and financial dimensions.

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