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The State as a Financial Intermediary to Foster Long-Term Investments
Burghof, Hans-Peter | Müller, Carola
Applied Economics Quarterly, Vol. 62 (2016), Iss. 3 : pp. 205–230
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Corresponding author: University of Hohenheim, Schloss Hohenheim – Osthof-Nord, 70599 Stuttgart
Department of Financial Markets, Halle Institute for Economic Research, Kleine Märkerstraße 8, D-06108 Halle (Saale)
Abstract
The economic development of the European Union is hampered by insufficient private and public long-term investments. This weakness is seen as a rationale for state intervention, and numerous projects are discussed and implemented to find new ways to mobilize private capital for long-term investments. For an economic assessment of this policy approach, the following paper evaluates the role of the state as a financial intermediary.
However, we cannot establish a dependable link between the ongoing depression of long-term investments in some European countries and a market failure in the market for the financing of such investments. Furthermore, the state can only imperfectly perform the tasks of a financial intermediary. And finally, approaches to mobilize retail investors’ money on the states’ behalf would crowd out the common bank deposits and thereby could lead to a significant increase of systemic risk.
JEL Classification: G18