Bureaucracy in Germany Costs 146 Billion Euros a Year in Lost Economic Output

Excessive bureaucracy costs Germany up to 146 billion euros a year in lost economic output. That is shown by a study conducted by the ifo Institute on behalf of the Chamber of Industry and Commerce for Munich and Upper Bavaria. “The large scale of the costs caused by bureaucracy illustrates how urgently reforms are needed. The costs of doing nothing are huge when measured against the untapped growth potential from reducing bureaucracy,” says Oliver Falck, Director of the ifo Center for Industrial Organization and New Technologies.

The calculations are based on a “Bureaucracy Index,” which provides a multidimensional reflection of the administrative burden in areas relevant to the economy and companies for a large number of countries. Based on this dataset, the researchers identify countries that have implemented broad-based bureaucracy reforms and track their economic development over time. Based on these results, they simulate the impact of bureaucracy reforms that would have brought Germany to the low level of bureaucracy of Sweden, the leader in the Bureaucracy Index.

The digitalization of public administration can also play an important role in reducing bureaucracy. “If Germany were to catch up with Denmark in terms of the digitalization of public administration, its economic output would be 96 billion euros a year higher,” adds Falck.

“Bureaucracy has been named as the biggest problem for business in all Chamber of Industry and Commerce surveys in the past two years. The smaller the company, the greater the burden. The ifo study is the first to quantify the extent to which bureaucracy and a lack of digitalization are actually putting the brakes on our companies,” says Manfred Gößl, CEO of the Chamber of Industry and Commerce for Munich and Upper Bavaria. “The damage, in the three-digit billion range, is gigantic. There can now be no more delays. An immediate moratorium on bureaucracy is needed. All verification and documentation requirements, reporting obligations and statistical reports, all the constant changes to the law, data protection requirements and lengthy administrative procedures must be scrutinized, significantly streamlined and in some cases completely abolished – in Berlin and Brussels,” continues Gößl. “Digitalization of public administration must be given a helping hand: Companies need centralized online access to all business-related services and uniform, user-friendly solutions nationwide.”

In the study, the researchers calculate the direct and indirect costs caused by bureaucracy in Germany. Based on this methodology, the total costs of bureaucracy are more than twice as high as other estimates, such as that by Germany’s National Regulatory Control Council, which puts the direct costs of bureaucracy at 65 billion euros per annum.