The infrastructure and the industrial investment promotion are key components and control instruments of the “Eastern Construction” project and thus important for economic growth. Against this background the study examined the decline in municipal investment activity in eastern Germany. After a detailed analysis of the development of municipal finances at a regionally disaggregated level, with high running costs and the high level of debt being the main factors.
The research provides evidence that the Länder have expanded their share of available resources at the expense of the municipalities. A growing trend was also observed to use the reconstruction transfers to a smaller extent for investments. The study presents a detailed analysis of this problem, with a close look at the different investment support-programmes and the differences in their effects. A simulation calculation until 2020 is also made which includes the negatives effects of the expiring solidarity funds and also the demographic effects on public finance. The results show that the budget structures of eastern German Länder and municipalities must be adapted in the coming years in order to again divert more funds into investments. In future, in light of demographic change and strained public budgets, the assistance funding must have a stronger programmatic and geographical orientation.
Fester, T., A. Kappler, H. Seitz, M. Thum (2005): Öffentliche Infrastruktur und kommunale Finanzen, ifo Dresden Studie 37, Munich/Dresden.
Fester, T., H. Seitz (2005): Öffentliche Infrastruktur und kommunale Finanzen, in: ifo Dresden berichtet 02/2005, p. 19-32 (Download, PDF, 239 KB).
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