A new study by the Ifo Institute for Economic Research has found that superfluous bureaucracy costs the German economy around 146 billion euros per year, more than double previous estimates.

Ifo study reveals economic losses caused by German bureaucracy

A study conducted by the Ifo Institute on behalf of the Chamber of Industry and Commerce in Munich and Upper Bavaria has revealed that the German economy is losing 146 billion euros in annual economic output due to excessive bureaucracy.

This figure is more than twice as high as a previous assessment from the German National Regulatory Control Council, which estimated the direct costs of bureaucracy at 65 billion euros per year.

“The large scale of the costs caused by bureaucracy illustrates how urgently reforms are needed. The costs of doing nothing are huge when measured against the untapped growth potential from reducing bureaucracy,” said Oliver Falck, Director of the Ifo Centre for Industrial Organisation and New Technologies.

With much of German bureaucracy still paper-based, the country struggles to keep up with its better-digitised European neighbours. Figures from Eurostat show that between 2018 and 2023, the German economy has underperformed compared to the EU average.

Germany currently finds itself in a vicious circle. The government’s decision to ease immigration requirements for skilled workers means more non-EU citizens are looking to move to Germany to help plug a record-high worker shortage. But newcomers face much sluggish bureaucracy once they arrive and government administration is among the sectors worst affected by the worker shortage.

In June this year, the German Economic Institute (IW) estimated that the skilled worker shortage would cost the country around 49 billion euros in 2024 alone.

Germany should look to Scandinavian approach to bureaucracy, says Ifo

In conclusion, Ifo suggested that Germany look to Sweden and Denmark’s approaches when considering new policies which could reduce unnecessary bureaucracy.

The “Bureaucracy Index”, on which the Ifo study was based, “identif[ies] countries that have implemented broad-based bureaucracy reforms and track[s] their economic development over time”, with Sweden coming out on top.

Alternatively, “If Germany were to catch up with Denmark in terms of the digitalisation of public administration, its economic output would be 96 billion euros a year higher,” Falck explained.

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