Proposal for an Economic Stimulus Package for Bavaria

Tasks

As a result of the corona pandemic and the measures taken to contain the corona virus, many companies are acutely threatened in their existence and jobs are at risk. In order to cushion the negative consequences of the pandemic and prevent a wave of insolvencies and job losses, it is necessary to take economic policy measures. In view of the great financial burdens on the state in this crisis, it is particularly important to design measures to promote economic recovery which are precisely targeted and cause-related.

The aim of this report is thus to present, discuss, and evaluate instruments that can reduce the economic for companies and employees.

Methods

Collection of company data via business surveys, evaluation and analysis of the data, and development of economic policy measures tailored to the needs and causes of companies and employees.

Data Sources

For the analysis, we use two company surveys as sources of information: the April wave of the monthly ifo business survey and a special survey conducted by the ifo Institute in cooperation with the Bavarian Chambers of Industry and Commerce (IHK). In addition, we have access to data on the utilization of the subsidy instruments of the LfA Förderbank Bayern.

Results

Particularly promising measures to promote economic recovery include a significant expansion of loss carryback opportunities and the creation of the possibility of setting aside provisions for losses in 2020. These measures would have an immediate positive effect on liquidity for many companies. The introduction of accelerated depreciation for operational investments would also have a significant liquidity effect. In contrast, a permanent reduction of profit taxation (corporation, income and trade tax) is only suitable to a limited extent as an instrument to stimulate the economy. Moreover, an expansion of public investment can also promote economic recovery. In particular, investments in public infrastructure, including infrastructure for the establishment of climate-friendly technologies (e.g. charging stations for electric vehicles or city toll systems), as well as investments in the digitization of schools and administration, should be considered.  The state can also create additional incentives to expand private investment through appropriate programs. Such programs can either be designed to be open to new technologies or concentrate on areas that can be expected to have a particularly positive effect on medium and long-term economic development (e.g., R&D programs, digital programs).

Publication (in German)

Dorn, Florian, Clemens Fuest, Florian Neumeier and Andreas Peichl, Vorschlag für ein wirtschaftspolitisches Konjunkturprogramm für Bayern , ifo Institute, Munich, 2020  PDF Download