The State as a Financial Intermediary to Foster Long-Term Investments

Hans-Peter Burghof and Carola Müller

Applied Economics Quarterly (formerly: Konjunkturpolitik), 2016, vol. 62, issue 3, 205-230

Abstract: The economic development of the European Union is hampered by insufficient private and public long-term investments. This weakness is seen as a rationale for state intervention, and numerous projects are discussed and implemented to find new ways to mobilize private capital for long-term investments. For an economic assessment of this policy approach, the following paper evaluates the role of the state as a financial intermediary. -- However, we cannot establish a dependable link between the ongoing depression of longterm investments in some European countries and a market failure in the market for the financing of such investments. Furthermore, the state can only imperfectly perform the tasks of a financial intermediary. And finally, approaches to mobilize retail investors’ money on the states’ behalf would crowd out the common bank deposits and thereby could lead to a significant increase of systemic risk.

Keywords: Long-term investments; financial intermediation; state subsidies; banking regulation; bank deposits (search for similar items in EconPapers)
Date: 2016
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