Policy Article

Budget consolidation and subsidy reduction: How the state can regain its ability to act (original publication in German)

Kieler Beiträge zur Wirtschaftspolitik, 3

Cutting government subsidies could contribute substantially to consolidating the budget in Germany. It would also diminish allocation and incentive distortions in the business sector and in doing so increase overall economic welfare. The authors have thus developed a traffic light system, which we call the Kiel Subsidy Traffic Light, to determine what subsidies could be cut to what extent. The traffic light turns red for subsidies that could be cut completely and indicates that subsidies amounting to a total of over €7.5 billion could be cut. It turns yellow for subsidies that serve economic objectives that are useful and should thus continue to be provided but that could be cut substantially if they were redesigned to be more efficient. These subsidies amount to a total of €19.7 billion. The analysis focused on federal subsidies (including sectoral and tax subsidies) relating to the areas of energy and environment policy, regional policy, and transportation policy. The authors did not look at subsidies relating to other policy areas or at subsidies provided by other government entities, although these subsidies could also be cut substantially.

Authors

Alfred Boss
Setareh Khalilian
Henning Klodt
Kristina Neuhuber