Enabling massive infrastructure and human capital investment with a Deutschlandfonds

_ Yuri Kofner, junior economist, MIWI Institute for Market Integration and Economic Research. Munich, 3 June 2021.

Productivity gap

According to forecasts by the ifo Institute, the number of people in employment in Germany will shrink by 0.3 percent annually over the next 15 years due to the aging of the population. As a result, as well as due to the negative interest rate policy and increasing “green” interventionism in the free market, the German economy will only grow by 0.6 percent per year until 2035.[1]

The future success of the German welfare state model ultimately depends on domestic corporate productivity and GDP growth. According to this, the productivity gap will reach 0.2 percentage points.

In order to maintain the growth and productivity potential of the German economy at a higher level in the long term despite these adverse circumstances, eminent economists, e.g. those of the IW Cologne, the Expert Council for the Assessment of Macroeconomic Development, the ifo Institute and other economic institutes, plead for an increase and continuation of state investments in infrastructure (transport, communication) and human capital (education, families, health).

Investment gap

It should be noted that Germany has a significant and growing investment gap. This means, among other things, ailing bridges, slow internet and outdated school buildings.

The share of government gross fixed capital formation (excluding R&D) in German GDP fell from 2.9 to 1.7 percent between 1992 and 2018. In 1970 this proportion was 4.7 percent, in 1980 3.5 percent, and in 1989 2.5 percent. [2]

Between 2000 and 2017, the German state invested EUR 845 per inhabitant, adjusted for price and purchasing power. In an EU comparison, Germany was eighth from the bottom – only ahead of Eastern European countries like Bulgaria, Latvia, Lithuania, Romania, Slovakia, Poland and Hungary. But countries with a high per capita capital stock such as Belgium, Italy and France have also invested significantly more than Germany. [3]

Government net investment was partially negative between 2004 and 2016. The German net capital stock fell by around 4 percent. Only Japan had a worse development of minus 10 percent.[4]

In a survey by the IW Cologne in 2018, a good two thirds of the companies stated that their operational business processes are regularly impaired by infrastructure problems in Germany. The proportion was even higher for companies in Bavaria: 68 percent in the road traffic sector and 72 percent in the communications network. [5]

At the municipal level in particular, the investment potential was weakened by structural budget problems. Local communities bear an average of 80 percent of the country’s local infrastructure investments.[6] According to the estimates made by the KfW municipal panel, the investment backlog of German municipalities rose to 149 billion euros in 2020.[7] In Bavaria, the municipalities were able to spend only almost 15 percent of their total expenditure on buildings in 2018.[8]

The development in public construction investments was particularly weak, especially at the municipal level. Almost half of the German motorway bridges (measured by bridge area) were built between 1965 and 1975. These bridges were never designed for today’s traffic volumes and, even with good care, would have been due for a thorough renovation today.[9]

Not only are the expenses for renovation and maintenance insufficient, but there is also a lack of future investments, e.g. in the area of digitization. The availability of fiber optic connections right into the house or apartment (fiber-to-the-premises, FTTP) in Germany in 2019 was 10.5 percent of households, well below the European average (33.5 percent). Rural areas in particular have only weak coverage with FTTP (5.6 percent vs. 17.5 percent).[10]

Overall, the IW Cologne has determined that the German economy has an investment requirement of 450 billion euros, 375 billion euros without the politically desired decarbonization.

Volatility of investment volume

According to a basic consensus among economists, the biggest problem is that investment activity of the government bodies in recent years has not been geared to long-term needs, but to short-term election cycles or the respective cash situation, especially when tax revenues flow more sparsely.

The economic crisis caused by the corona restrictions will continue to exacerbate this problem. For example, in 2020 the Bavarian cities and municipalities recorded a decrease in trade tax income of around 867 million euros or 10.2 percent compared to the previous year. With a minus of 23.2 percent, the independent cities were particularly affected. The total tax revenue of the Bavarian municipalities decreased by 1.1 billion euros or 5.4 percent in the past year. [11]

Sluggish utilization

However, the (lack of) availability of funding does not seem to be the reason for the inadequate investment activity in every case. From the federal Energy and Climate Fund of 4.6 billion euros only 3.1 billion euros were drawn off in 2019. Since 2015, 11 billion euros have been available for the federal funding program for broadband expansion, of which only around 566 million euros had been disbursed by June 2020. For 91 projects from this program, municipalities even waived the funding that had already been approved.[12]

Lack of staff and planning in administration and construction

A lack of personnel capacities in building authorities and the construction industry are a particularly critical problem.

German building authorities have cut posts over a decade and a half and at the same time have been confronted with increasingly complex regulations. Here, the number of employees in terms of full-time equivalents fell by around 40 percent between 1995 and 2015 and by a further 9 percent between 2011 and 2015.[13] Both the high age structure and the corona restrictions are likely to exacerbate this bottleneck. As a result, many municipalities today are no longer able to adequately plan and carry out major construction investments.

Due to fluctuating order volumes from municipalities, federal states and the German federal government, the construction industry was hardly able to invest in capacity increases in the long years of the construction recession after 2000, so that the construction boom of recent years, and especially during the Corona crisis, has led to a historic record capacity utilization.

However, both building authorities and the construction industry are confronted with another serious problem, which impairs any capacity expansions – the shortage of skilled workers. In all important construction trades, there are only 50 or fewer unemployed for every 100 vacancies.[14] This in turn led to sharply rising prices, which absorbed a significant part of the increases in budget expenditure.[15]

Here, too, the corona economic crisis has drastically exacerbated inflationary pressure in the construction industry.[16]

Debt brake and bureaucratic barriers

Complex planning and approval procedures represent a further obstacle to the faster implementation of investments. Accelerated court proceedings, as recommended by the National Regulatory Control Council, as well as stronger standardization could simplify these procedures.

In the Federal Republic of Germany, the debt brake was enshrined in the constitution in 2009, which from 2020 onwards no longer allows the federal states to borrow investment-oriented (structural) debt and the federal government will be allowed only 0.35 percent of nominal GDP.[17]

The debt brake is, in principle, a correct measure to prevent potential excessive national debt.

However, it is either simply bypassed. e.g., to cushion the negative consequences of the corona restrictions introduced by the government.

Or it prevents necessary, i.e. productivity-enhancing, investments in infrastructure and human capital in favour of the increasing state consumption for social benefits. Investments, which normally have a late-impact effect, are usually a residual variable in budget planning compared to social benefits, which most have an immediate effect, which is particularly important during the election cycle.[18]

Apart from that, the IfW Kiel estimates that government subsidies that were harmful to the German market economy amounted to 21.7 billion euros in 2020. At least 10 billion euros of these subsidies could have been cancelled.[19]


The above analysis has shown that Germany has a significant investment gap of at least 375 (without decarbonisation) to 450 billion euros, which endangers future economic growth, corporate productivity and social security in the Federal Republic.

In order to close this gap, it not only requires spending at this level in infrastructure and human capital, but above all a stabilization of capital investments, which should be more independent of the economic and election cycles and thus guarantee construction companies and industry a greater planning security.

At the same time, such additional financing would have to be compatible with the above-mentioned constitutional debt brake.

Furthermore, bureaucratic obstacles to the approval of investment projects must be removed and planning capacities increased.

In order to achieve these tasks, leading economists such as Michael Hüther from the IW Cologne,[20] Clemens Fuest from the ifo Institute[21] and the Scientific Advisory Board at the Federal Ministry of Economics[22] propose the creation of a “Deutschlandfonds” at the federal level.

This investment fund could be set up within the framework of the existing rules of the debt brake by setting up a legally independent person under public or private law (fully owned by the federal government) as a federal investment fund, which would be commissioned with the implementation of the necessary investments and which would be allowed borrowing within the framework of the net investments made (e.g. public law institution, foundation, AG, GmbH).[23]

As long as this construct is not a pure financing vehicle, but actually assigned new material tasks, this extra budget would not fall under the rules of the constitutional debt brake. As with any other state-owned company, e.g. the Deutsche Bahn AG or the Autobahn GmbH, its debt would not be attributed to the federal government, although it would be the sole owner.[24]

In order to ensure the continuation of investment activity, this investment fund should take out the necessary sum of 375 to 450 billion euros as a loan and make it available over a period of 10 years at the request of the federal states and municipalities for their investment projects in infrastructure and human capital. This would correspond to annual additional government investments of 38 (without decarbonisation) to 45 billion euros or 1.1 to 1.3 percent of German GDP in 2019.

Such a stabilization of the allocation of funds would give the municipalities and the providers of the required services, e.g. the construction industry, the much needed planning security. The effects of the annuality principle on state budgets would be significantly reduced.

Furthermore, this investment fund could also alleviate the problem of the shortage of qualified personnel for building management projects in the municipalities by outsourcing the consultation, planning and approval procedures to the fund on a contractual basis.[25]

Such a joint use in the sense of a public-private partnership (PPP) of personnel from the investment fund by the municipalities of the federal states should generate economies of scale and specialization advantages, because not every municipality is big enough on its own to plan and implement larger investments.[26]

When creating this investment fund, care should be taken to ensure that it does not suffer from the usual illnesses of state-owned companies such as inefficiency and corruption. It should therefore work according to strict transparency rules and with a separation of planning services, approval procedures for applications from the regional authorities and controlling. Ongoing parliamentary control over the fund activities with certain veto rights would be recommended, e.g. as it is the case with the control commission of the Bavarian state parliament over the activities of the BayernFonds or the Bayerische Finanzagentur GmbH.[27]

Another measure might be the creation of not one but several competing investment funds.

The financing of projects by the Deutschlandsfonds should not depend on whether they fall under the classic investment definition. When it comes to investing in human capital, such as, for example, spending on education, personnel expenses are an essential component. Instead, target-related benefit-cost analyses should be used to examine the effectiveness of the individual investment projects on future productivity and economic growth,[28] which should also meet the additionality criterion. For projects that also include ongoing expenses, further financing must be ensured after the fund has expired.[29]

In addition, tightening measures must be taken to reduce red tape. An important step would be the nationwide standardization of construction regulations. Furthermore, the Bundestag or the state parliaments could use the instrument of legal planning. This means that the parliament decides on an important building project by law, i.e. takes on the function of the approval authority. The legal planning instrument has been used successfully for years in Denmark, for example.[30] The recently passed “Measures Acceleration Act” represents an entry point for Germany in this aspect.[31]

In order to estimate the macroeconomic effects of such an investment fund for Germany amounting to 450 billion euros over the next 10 years, simulations were carried out using the world economic model from Oxford Economics. The results show that these government investments are likely to bring about a significant economic impulse that is in the order of 1 percent of the price-adjusted GDP and that also stimulates private investment activity in Germany. In the medium to long term, the overall economic production potential is expected to increase by around 1.4 percent compared to the base forecast. The impact on public finances would be limited: the increase in public debt induced by the investment fund would amount to 5.1 percent after ten years and the budget deficit according to the Maastricht definition would be 0.6 percent over the entire period.[32]


[1] ifo Institut (2019). Wachstum und Produktivität 2035 – Innovations- und Produktivitätslücken auf Ebene der Bundesländer. URL: https://www.ifo.de/en/publikationen/2019/monograph-authorship/wachstumund-produktivitat-2035-innovations-und

[2] Hellwig M. (2021). Deutschland braucht ein Investitionskompetenzprogramm. Max-Planck-Institut. Veröffentlicht im Wirtschaftsdienst (ZBW). URL: https://www.wirtschaftsdienst.eu/inhalt/jahr/2021/heft/3/beitrag/deutschland-braucht-ein-investitionskompetenzprogramm.html

[3] Hüther M., Jung M. (2021). Unzureichende Investitionsinitiative. IW Köln. Veröffentlicht im Wirtschaftsdienst (ZBW).  URL: https://www.wirtschaftsdienst.eu/inhalt/jahr/2021/heft/3/beitrag/unzureichende-investitionsoffensive.html

[4] Grimm V. et al. (2021). Investitionen für nachhaltiges Wachstum in Deutschland: Status quo und Perspektiven. Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung (SVR). Veröffentlicht im Wirtschaftsdienst (ZBW). URL: https://www.wirtschaftsdienst.eu/inhalt/jahr/2021/heft/3/beitrag/investitionen-fuer-nachhaltiges-wachstum-in-deutschland-status-quo-und-perspektiven.html

[5] Grömling, M., Puls, T. (2018). Infrastrukturmängel in Deutschland – Belastungsgrade nach Branchen und Regionen auf Basis einer Unternehmensbefragung. IW Köln. URL: https://www.iwkoeln.de/studien/iw-trends/beitrag/michael-groemling-thomas-puls-infrastrukturmaengel-in-deutschland-393482.html

[6] Hüther M. (2020). Mehr Flexibilität. IW Köln. URL: https://www.iwkoeln.de/presse/interviews/beitrag/michael-huether-mehr-flexibilitaet.html

[7] KfW Research (2020): KfW-Kommunalpanel 2021. URL: https://www.kfw.de/PDF/Download-Center/Konzernthemen/Research/PDF-Dokumente-KfW-Kommunalpanel/KfW-Kommunalpanel-2021.pdf

[8] Hüther M., Kolev G. (2019). Investitonsfonds für Deutschland. IW Köln. URL: https://www.iwkoeln.de/studien/iw-policy-papers/beitrag/michael-huether-galina-kolev-investitionsfonds-fuer-deutschland.html

[9] BMVI (2016). Stand der Ertüchtigung von Straßenbrücken der Bundesfernstraßen. URL: https://www.bmvi.de/SharedDocs/DE/Anlage/StB/bericht-stand-der-modernisierung-von-strassenbruecken-2016.pdf?__blob=publicationFile

[10] European Commission (2021). Broadband Connectivity in the Digital Economy and Society Index. URL: https://digital-strategy.ec.europa.eu/en/policies/desi-connectivity

[11] Bayerisches Landesamt für Statistik (2021). Fast 870 Millionen Euro weniger Gewerbesteuer für Bayerns Gemeinden. URL: https://www.statistik.bayern.de/presse/mitteilungen/2021/pm70/

[12] Deutscher Bundestag (2020). Antwort der Bundesregierung auf die Kleine Anfrage der Fraktion BÜNDNIS 90/DIE GRÜNEN. Drucksache, 19/21141.

[13] Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung (SVR) (2021). Corona-Krise gemeinsam bewältigen, Resilienz und Wachstum stärken. Jahresgutachten 2020/21. URL: https://www.sachverstaendigenrat-wirtschaft.de/jahresgutachten-2020.html

[14] Puls T. (2020). Jenseits des Geldes. Was behindert den Infrastrukturausbau in Deutschland. IW Köln. URL: https://www.iwkoeln.de/studien/iw-reports/beitrag/thomas-puls-was-behindert-den-infrastrukturausbau-in-deutschland.html

[15] Hentze T., Kolev G. (2017). Gesamtwirtschaftliche Effekte einer Ausdehnung der öffentlichen Investitionen. IW Köln. URL: https://www.iwkoeln.de/studien/iw-policy-papers/beitrag/tobias-hentze-galina-kolev-gesamtwirtschaftliche-effekte-einer-ausdehnung-der-oeffentlichen-investitionen.html

[16] ifo Institut (2021). Materialmangel auf dem Bau verschärft sich drastisch. URL: https://www.ifo.de/node/63511

[17] Hüther M., Südekum J. (2019). Die Schuldenbremse – eine falsche Fiskalregel am falschen Platz. IW Köln, Düsseldorf Institute for Competition Economics (DICE). URL: https://econpapers.repec.org/paper/zbwdiceop/103.htm

[18] Bertelsmann-Stiftung (2015). Kommunale Sozialausgaben – Wie der Bund sinnvoll helfen kann. URL: https://www.bertelsmann-stiftung.de/en/publications/publication/did/kommunale-sozialausgaben

[19] Laaser CF, Rosenschon A. (2020). Kieler Subventionsbericht 2020: Subventionen auf dem Vormarsch. IfW Kiel.  Die Schätzungen sind ohne das fiskalische Corona-Konjunkturpaket. URL: https://www.ifw-kiel.de/de/publikationen/kieler-beitraege-zur-wirtschaftspolitik/kieler-subventionsbericht-2020-subventionen-auf-dem-vormarsch-0/

[20] Hüther M. (2020). Ein Deutschlandfonds mit 450 Milliarden Euro macht unser Land fit für die Zukunft. IW Köln. URL: https://www.iwkoeln.de/presse/in-den-medien/beitrag/michael-huether-ein-deutschlandfonds-mit-450-milliarden-euro-macht-unser-land-fit-fuer-die-zukunft.html

[21] Fuest C. (2021). Die Schuldenbremse abzuschaffen lohnt sich nicht. ifo Institut. URL: https://www.ifo.de/publikationen/2021/ifo-standpunkt/die-schuldenbremse-abzuschaffen-lohnt-sich-nicht

[22] BMWi (2020). Öffentliche Infrastruktur in Deutschland: Probleme und Reformbedarf. URL: https://www.bmwi.de/Redaktion/DE/Publikationen/Ministerium/Veroeffentlichung-Wissenschaftlicher-Beirat/gutachten-oeffentliche-infrastruktur-in-deutschland.pdf

[23] Nach modellbasierten Prognosen für die künftige Entwicklung der langfristigen Realzinsen (bis 2050) ist davon auszugehen, dass die Zinsen nachhaltig niedrig bleiben – nach einem leichten Anstieg durch eine mögliche Normalisierung der Geldpolitik. Sieh dazu: Demary M., Voigtländer M. (2018. Niedrigzinsen. Kein Ende in Sicht. IW Köln. URL: https://www.iwkoeln.de/presse/pressemitteilungen/beitrag/markus-demary-michael-voigtlaender-kein-ende-in-sicht.html

[24] Laut einem weitergehenden Vorschlag des IW Köln könnten die Gebietskörperschaften dann die entsprechenden Kapitalgüter von dieser rechtlich selbständigen Person gegen die Zahlung der Finanzierungskosten und der ökonomischen Abschreibung der Investitionsgüter „leasen“. Eine Änderung des Grundgesetzes wäre demnach nicht erforderlich, es könnte schnell gehandelt werden.

[25] Puls T. (2020). Jenseits des Geldes. Was behindert den Infrastrukturausbau in Deutschland. IW Köln. URL: https://www.iwkoeln.de/studien/iw-reports/beitrag/thomas-puls-was-behindert-den-infrastrukturausbau-in-deutschland.html

[26] Freshfields (2017). Möglichkeiten zur Beschleunigung der Planung und Genehmigung von Verkehrsprojekten. URL: https://www.promobilitaet.de/fileadmin/user_upload/PDF_Allgemein/Verbaende_Gutachten_Planungsbeschleunigung.pdf

[27] Gesetz über einen BayernFonds und eine Bayerische Finanzagentur (2020). URL: https://www.gesetze-bayern.de/Content/Document/BayFoG

[28] Hüther M. (2019). 10 Jahre Schuldenbremse – ein Konzept mit Zukunft? IW Köln. URL: https://www.iwkoeln.de/studien/iw-policy-papers/beitrag/michael-huether-10-jahre-schuldenbremse-ein-konzept-mit-zukunft.html

[29] Beznoska M., Kauder B., Obst T. (2021). Investitionen, Humankapital und Wachstumswirkungen öffentlicher Ausgaben. IW Köln. URL: https://www.iwkoeln.de/studien/iw-policy-papers/beitrag/martin-beznoska-bjoern-kauder-thomas-obst-investitionen-humankapital-und-wachstumswirkungen-oeffentlicher-ausgaben.html

[30] Puls T. (2013). Stur in den Stau. IW Köln. URL: https://www.iwkoeln.de/filead-min/user_upload/Studien/IW-Analysen/PDF/Positionen/Positionen_59.pdf

[31] Deutscher Bundestag (2019). Drucksache 19/15619.

[32] IW Köln (2019). Für eine solide Finanzpolitik: Investitionen ermöglichen! URL: https://www.iwkoeln.de/studien/iw-policy-papers/beitrag/hubertus-bardt-michael-huether-investitionen-ermoeglichen.html


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