Transformative Investment as the Driver of a New Economic Boom?

by Tom Krebs


8. JANUARY 2024

This study examines the growth effects of public investment in the socio-ecological transformation of the economy and society. The analysis shows that a drastic expansion of public climate and social investments in Germany can trigger an economic boom and at the same time support the transformation towards climate neutrality. In a positive scenario, annual growth rates of up to three per cent can be expected over the longer term. In this sense, a green economic miracle is possible. However, this positive scenario will only become a reality if the public sector dramatically increases climate and social investments – by around two per cent of GDP on a sustained basis. A negative scenario, in which the German economy barely grows for several years, is also possible. Such a stagnation scenario is highly likely if the German government sticks to its current fiscal policy, thereby preventing a growth-enhancing investment drive.



During the high point of market orthodoxy, economists argued that the most 'efficient' way to combat climate change was to simply let markets determine the price of carbon emissions. Today, there is a growing consensus that prices need to be regulated and that a carbon price on its own might not be enough.