For a sound fiscal policy: enabling public Investment

Hubertus Bardt, Sebastian Dullien, Michael Hüther () and Katja Rietzler ()
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Michael Hüther: IW Koeln

No 152e-2020, IMK Report from IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute

Abstract: The public sector in Germany has massively neglected its investments in the past two decades. The result is a public capital stock that does not meet the requirements of a modern economy and is inadequate to meet the challenges posed by the imminent demographic change and the international commitments for decarbonisation. If the requirements in the areas of education, transport, communication networks and decarbonisation are added together, the additional public investment or public investment promotion required over the next 10 years is around €450 billion, i.e. around €45 billion per year. From a macroeconomic perspective, this amount can be shouldered well, but it is unrealistic to finance these investments solely by redeploying funds in existing budgets. For this reason, the debt rules in the Germen constitution should be extended to include a golden rule allowing borrowing to the extent of net investment. Until such a rule is implemented, room for manoeuvre should be used, for example through extra-budgetary entities. It is also important to provide sustainable debt relief for municipalities, which play a central role in public investment, especially in transport infrastructure.

Pages: 15 pages
Date: 2020
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Working Paper: For a sound fiscal policy: Enabling public investment (2020)
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