Germany’s Ifo Institute is advocating for the permanent implementation of accelerated depreciation allowances, currently available through the “Investment Booster” program, citing its potential to stimulate economic growth.
A study released by the institute on Thursday suggests that both the proposed corporate tax reduction and the introduction of accelerated depreciation would contribute to a long-term increase in the capital stock, thereby boosting investment.
The research highlights accelerated depreciation as particularly effective. Modeling indicates that, especially for durable capital goods, the measure leads to a significant increase in the capital stock – the resources an economy uses to produce goods and services. Importantly, the study suggests this would have a limited impact on public finances, potentially financing itself in most modeled scenarios. While corporate tax reductions are also projected to increase investment, they would considerably reduce state revenues by approximately eleven billion euros annually.
Researchers argue that permanently extending the accelerated depreciation, currently scheduled to expire in 2027, would provide greater planning certainty for businesses, create consistent investment incentives and strengthen Germany’s economic position with manageable fiscal implications. “It would be sensible to introduce accelerated depreciation not only temporarily until 2027, but permanently” explains Ifo researcher Manuel Menkhoff.
