Working Paper

: People, Party or Money? Determinants of Local Government Infrastructure Investment

Drivers of local public infrastructure investment have preoccupied researchers for decades. In Germany, Europe`s largest economy, there is an increasing awareness since deteriorating infrastructure quality seems to become a considerable risk for economic growth. In addition to fiscal restrictions, another aspect is becoming increasingly important for investment activity at the municipal level in times of ageing societies which has been neglected by most studies so far: personnel capacities. We investigate the issue for a sample of local governments in the German state of North Rhine-Westphalia for the period from 2009 to 2023. The results of a dynamic panel corroborate the well-known relevance of the revenue situation as well as a trade-off between social and investment expenditure. What we contribute to existing literature is robust evidence regarding the role of a local governments` capacity to implement investment policies - measured as full-time equivalents in local building departments.

Keywords: Public Finance, Local Governments, Infrastructure, Investment, Dynamic Panel