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Here’s how Germany’s Kinderbonus payments ‘boosted economy’ in pandemic

Germany's coronavirus cash payment to families was found to be a more efficient and cost-effective way of boosting spending than lowering VAT, a new study shows.

Here's how Germany's Kinderbonus payments 'boosted economy' in pandemic
Families got a cash boost in the pandemic. Photo: DPA

The German government introduced a raft of measures – including the Kinderbonus and slashing VAT rates – aimed at boosting the economy.

The move was to get people spending money again after the shutdown in spring 2020 to slow the spread of Covid-19.

And now, as the government announced it is to give out another Kinderbonus this year, a new study has highlighted the positive effects of the one-off cash boost to families.

The €300 payment per child given out in autumn 2020 effectively boosted private household consumption, according to research by the Macroeconomic Policy Institute (IMK) of the Hans Böckler Foundation.

According to the study, the ratio between the costs invested by the government and the benefits for the economy was better with the Kinderbonus than with the temporary reduction of VAT, in place between July and December last year.

In a survey from November 2020, 37 percent of respondents said they had already spent the Kinderbonus in full.

Another 27 percent had spent the one-time payment at least partially. On average, 51 percent of all households who received the payment had spent it on private consumption at that time. The remaining amount was saved or used to pay off debts.

With about 18 million children whose parents are entitled to child benefit, €2.8 billion has flowed into the economy through spending by private households since the bonus was paid out, calculations by the IMK show.

Since the federal government invested a total of about €4.3 billion in the scheme, this measure is very efficient, researchers said.

READ ALSO: How Germany plans to increase child benefits and provide tax relief

VAT reduction was more costly

A second economic stimulus measure, the temporary reduction of VAT, cost the government considerably more: a total of €20 billion according to the Finance Ministry.

In the IMK survey, however, the majority of respondents said that in their perception, the VAT reduction had only been partially passed on to consumers. Meanwhile, just under 30 per cent were of the opinion that the tax cut had been passed on for the most part.

Nevertheless, according to 79 percent of the respondents, the VAT reduction had no noticeable impact on consumer behaviour. Only 16 percent used the tax cut to bring forward planned purchases, 4.5 percent to make additional purchases.

The study did not record how much money the respondents spent on additional or purchases that were brought forward.

But the Munich-based ifo Institute for Economic Research calculated an average consumption effect of about €152 per household. This would result in additional expenditure of about €6.3 billion. This corresponds to about one third of the cost of the tax cut.

The IMK also concludes from the data that above all, households with higher incomes used the VAT cut for additional purchases.

The Kinderbonus, on the other hand, had specifically reached households with low to medium incomes, and who were often confronted with additional costs over the course of the pandemic.

One-off payment to everyone 'would also boost economy'

Since, in contrast to the tax cut, not everyone benefited from the Kinderbonus, the IMK also asked households without children how they would use a hypothetical one-off payment of €500.

The answers show that the respondents would spend on average about 41 percent of such an additional income.

The study concludes that the consumption-increasing effect of the Kinderbonus is likely to be considerable measured against the manageable costs for the federal government – and assumes that a broader one-off payment to private households, comparable to direct aid in the US, could have a similar effect.

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LIVING IN GERMANY

REVEALED: The most commonly asked questions about Germans and Germany

Ever wondered what the world is asking about Germany and the Germans? We looked at Google’s most searched results to find out – and help clear some of these queries up.

Oktoberfest
Hasan Salihamidzic, the sports director of FC Bayern, arrives with his wife at Oktoberfest in full traditional dress. Photo: picture alliance/dpa |

According to popular searches, Germany is the go-to place for good coffee and bread (although only if you like the hard kind) and the place to avoid if what you’re looking for is good food, good internet connection and low taxes. Of course, this is subjective; some people will travel long stretches to get a fresh, hot pretzel or a juicy Bratwurst, while others will take a hard pass.

When it comes to the question on the bad Internet – there is some truth to this. German is known for being behind other rich nations when it comes to connectivity. And from personal experience, the internet connection can seem a little medieval. The incoming German coalition government has, however, vowed to improve internet connectivity as part of their plans to modernise the country.

There are also frequent questions on learning the German language, and people pointing out that it is hard and complicated. This is probably due to the long compound words and its extensive grammar rules, however, as both English and German are Germanic languages with similar words in common, it’s not impossible to learn as an English-speaker.

Here’s a look at some of those questions…

Why is German called Deutsch? Whereas ‘German’ comes from the Latin, ‘Deutsch’ instead derives itself from the Indo-European root “þeudō”, meaning “people”. This slowly became “Deutsch” as we know it today. It can be a bit confusing to English-speakers, who are right to think it sounds a little more like “Dutch”, however the two languages do have the same roots which may explain it.

And why is Germany so boring? Again, probably a generalisation, especially given that Germany has a landmass of over 350,000 km² with areas ranging from high rise, industrial cities to traditional old town villages and even mountain ranges, so you’re sure to find a place that doesn’t bore you to tears.

Perhaps it is a question that comes from the stereotype that Germans are obsessed with strict about rules, organised and analytical. Or that they have no sense of humour – all of these things being not the most exciting traits. 

Either way, from my experience I can confirm that, even though there is truth to German society enjoying order and rules, the vast majority of people are not boring, and I’m sure if you come to Germany you’ll meet many interesting, funny and exciting people. 

READ ALSO: 12 mistakes foreigners make when moving to Germany

When it comes to the German weather, most people assume a cold and cloudy climate, however this isn’t entirely true. While the autumn and winter, especially in the north, comes with grey skies and sub-zero temperatures, Germany can have some beautiful summers, with temperatures frequently rising above 30C in some places.

Unsurprisingly, the power and wealth of the German nation is mentioned – Germany is the largest economy in Europe after all, with a GDP of 3.8 trillion dollars. This could be due to strong industry sectors in the country, including vehicle constructions (I was a little surprised to find no questions posed on German cars), chemical and electrical industry and engineering. There are also many strong economic cities in Germany, most notably Munich, Frankfurt am Main and Hamburg.

READ ALSO: Eight unique words and phrases that tell us something about Germany

Smart and tall?

Why are Germans so tall? They are indeed taller than many other nations, with the average German measuring a good 172.87cm (or 5 feet 8.06 inches), however this may be a question better posed to the Dutch, who make up the tallest people in the world.

Why are Germans so smart? While this is again a generalisation – as individuals have different levels of intelligence in all countries – this question may stem from Germany’s free higher education system or their seemingly efficient work ethic. Plus there does seem to be some scientific research behind this question, with a study done in 2006 finding that Germans had the highest IQ in Europe.

So, while many of the questions posed about Germany and Germans on Google stem from stereotypes, we can confirm that some aren’t entirely made up. If you’re looking to debunk some frequently asked questions about France and the French, check out this article by our sister site HERE.

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