Economic stimulus package: More is not always better

The heads of the coalition sit together in the Chancellor’s Office and discuss the federal government’s new economic stimulus package. It is clear that it will come. It is also no longer a matter of dispute that it will have a volume of 80 to 100 billion euros. Because a lot helps a lot, that’s what everyone agrees on. But obviously not yet about the „small print“, i.e. what the money is to be spent on.

In the run-up to the meeting, the positions have already been set out. The Federal Minister of Finance has made his preferences public, as have the Minister of Economics, a number of state premiers, the SPD party leadership, and numerous members of parliament from the SPD and CDU/CSU factions. So the wish list is so long that an agreement has become unlikely even today. It ranges from family allowances, a prolonged and increased short-time work allowance, various tax cuts and depreciation relief, as well as investment programs and debt relief for financially weak municipalities, all the way to the 2.0 scrappage scheme.

At least some lessons can be drawn from earlier emergency measures in economic policy for today’s debate: The programmes work best when they are applied in the right place, when they can be implemented quickly and when they do not contradict other economic policy objectives.

This actually means that a whole series of current proposals have already been dropped: for example, the family allowances (once EUR 300 or 600 per family with children) are not being applied in the right place. In most cases, the purchasing power of families is not lacking at the moment. On the contrary, the savings ratio is likely to rise sharply anyway. Most of the additional money would also be saved, so its economic effect would be negligible.

A government investment program cannot be implemented quickly, however sensible it may be in many places. It is therefore not suitable for an economic stimulus package either. And it would contradict the other economic policy objectives if consumers were to be encouraged to buy a car with a combustion engine while at the same time it is clear that this technology has no great future. Nor is it conducive to support those municipalities that have had the worst financial performance in the past.

Rather, the above-mentioned criteria of accuracy, rapid implementation and conformity with economic policy objectives would support the following proposals: A (temporary) reduction in value-added tax to stimulate consumption, improved depreciation conditions as well as easier tax loss carry-back opportunities for companies, a restructuring of municipal financing through a higher federal participation in the Harz IV costs, higher subsidies for municipal investments that are pending anyway and less dependence on trade tax.

In order to support families that have been particularly hard hit by the crisis, one could think, for example, of a targeted, but also needs-based improvement in the computer equipment of households. After all, the era of digital school lessons is probably only just beginning, and poor technical equipment for children can have long-lasting consequences. Here, the funds would be invested sensibly and quickly.

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