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Public Investment a Key Prerequisite for Private Sector Activity

Author

Listed:
  • Marius Clemens
  • Marius Goerge
  • Claus Michelsen

Abstract

Ten years after the 2008 financial crisis, in the euro area investment is still below the pre-crisis level. Public and private investment growth is so weak that capital per worker (capital intensity) has virtually remained constant. An increase in public investment activity could ultimately stimulate private investment. Estimates for the euro area show that an increase in public investment by one billion euro goes hand in hand with a medium-term increase in private investment of around 1.1 billion euro. In Germany, the effect is somewhat greater. Investment in construction and infrastructure are the most significant drivers. The public sector’s widespread reluctance to invest could partially explain the weakness in private investment activity. The public sector should now begin investing more. And the rigid balanced budget amendment (Schuldenbremse) should be replaced by more flexible expenditure rules.

Suggested Citation

  • Marius Clemens & Marius Goerge & Claus Michelsen, 2019. "Public Investment a Key Prerequisite for Private Sector Activity," DIW Weekly Report, DIW Berlin, German Institute for Economic Research, vol. 9(31), pages 255-261.
    • Handle: RePEc:diw:diwdwr:dwr9-31-2
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    File URL: https://www.diw.de/documents/publikationen/73/diw_01.c.670933.de/dwr-19-31-2.pdf
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    Citations

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    Cited by:

    1. Tom Krebs, 2020. "Ein Investitionspaket ist das beste Konjunkturpaket," Wirtschaftsdienst, Springer;ZBW - Leibniz Information Centre for Economics, vol. 100(7), pages 497-500, July.

    More about this item

    Keywords

    Investment; crowding in; public finance;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures

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