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The Ifo Institute, through its EconPol Europe platform, has provided clear economic policy guidelines for the German federal government's €500 billion special fund, aimed at infrastructure investment. The institute emphasises the importance of evidence-based, effective economic policy and recommends targeted public investment in strategic sectors, supported by structural reforms and tax incentives to stimulate private investment.
The €500 billion special fund forms part of a broader strategy that includes low-carbon transition and defense spending, reflecting a multi-faceted investment approach. The fund is designed to be an "off-budget" mechanism to boost infrastructure and strategic investments without directly affecting the conventional budget constraints.
Emphasis is placed on investment in strategic sectors to achieve sustainable growth and competitiveness. Coordination with fiscal and structural reforms is crucial to amplify the effects of public investment. Tax incentives and regulatory adjustments are suggested to mobilise and complement private sector investments.
The Ifo Institute advocates for a structured, evidence-driven policy framework to ensure the effective use of the special fund, targeting areas with significant economic multiplier effects and fostering a conducive environment for additional private investment. This approach seeks to modernise the country and return to at least 1% potential growth rapidly.
Ifo expert, Oliver Falck, stated that the state should only promote where the market fails or political goals such as equal living conditions are pursued. However, the institute did not specify what political goals are being pursued through the investment in infrastructure.
The Ifo Institute also emphasises the need for reforms in bureaucracy, regulation, and planning processes for effective infrastructure investment. Yet, it did not elaborate on the nature of the reforms needed.
In conclusion, the Ifo Institute's guidance underscores a comprehensive, research-backed approach to ensure that the €500 billion fund achieves its goal of modernising Germany's infrastructure and accelerating growth, while maintaining fiscal prudence and competitiveness. The institute suggests that for the special fund to be an economic policy success, it requires clear economic policy guidelines and smart prioritisation, rather than blanket promotion. A timeline for when the infrastructure investment should occur was not provided.
The €500 billion special fund will be invested in strategic sectors, as recommended by the Ifo Institute, which aims for sustainable growth and competitiveness in the industry, finance, and business sectors. Meanwhile, the Institute highlights the importance of this investment being part of a broader strategy that includes a multi-faceted approach, including low-carbon transition and defense spending.
