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Germany’s Swift Package of Business Tax Breaks Aimed at Stimulating Investment

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  • Michael Funke
  • Raphael Terasa

Abstract

Germany has introduced a comprehensive package of staggered business tax breaks to accelerate business investment and give new momentum to economic growth. The key components of the so-called investment booster program are a temporary tax write-off on machinery and other equipment investments to a maximum of 30% in 2025, 2026, and 2027, followed by a stepwise permanent reduction of the corporate tax rate from 15% to 10% between 2028 and 2032. We first present a stochastic general equilibrium (DSGE) modeling setup and baseline results for the enacted unconventional policy measures incentivizing investment, then assess counterfactual policy regimes including various red tape streamlining supply shock scenarios. Overall, the insights into the unconventional reform package provide actionable guidelines for the design of business tax breaks aimed at stimulating investment.

Suggested Citation

  • Michael Funke & Raphael Terasa, 2026. "Germany’s Swift Package of Business Tax Breaks Aimed at Stimulating Investment," CESifo Working Paper Series 12385, CESifo.
    • Handle: RePEc:ces:ceswps:_12385
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    Keywords

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    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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