IDEAS home Printed from https://ideas.repec.org/p/imk/wpaper/230-2026.html

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

Author

Listed:
  • Katja Rietzler

    (Macroeconomic Policy Institute (IMK))

  • Christian Raffer

    (German Institute of Urban Affairs)

Abstract

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.

Suggested Citation

  • Katja Rietzler & Christian Raffer, 2026. "People, Party or Money? Determinants of Local Government Infrastructure Investment," IMK Working Paper 230-2026, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    • Handle: RePEc:imk:wpaper:230-2026
    as

    Download full text from publisher

    File URL: http://www.boeckler.de/pdf/p_imk_wp_230_2026.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Wen Wang & Yonghong Wu, 2018. "Why Are We Lagging Behind? An Empirical Analysis of Municipal Capital Spending in the United States," Public Budgeting & Finance, Wiley Blackwell, vol. 38(3), pages 76-91, September.
    2. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-1054, July.
    3. Riedel Nadine & Simmler Martin & Wittrock Christian, 2021. "Do political parties matter? Evidence from German municipalities," German Economic Review, De Gruyter, vol. 22(2), pages 153-198, May.
    4. James Alm & Trey Dronyk‐Trosper, 2021. "What drives road infrastructure spending?," Public Budgeting & Finance, Wiley Blackwell, vol. 41(4), pages 20-49, December.
    5. Hibbs, Douglas A., 1977. "Political Parties and Macroeconomic Policy," American Political Science Review, Cambridge University Press, vol. 71(4), pages 1467-1487, December.
    6. Alexander Plekhanov & Raju Singh, 2006. "How Should Subnational Government Borrowing Be Regulated?Some Cross-Country Empirical Evidence," IMF Staff Papers, Palgrave Macmillan, vol. 53(3), pages 1-4.
    7. Taylor, Leon, 1992. "Infrastructural competition among jurisdictions," Journal of Public Economics, Elsevier, vol. 49(2), pages 241-259, November.
    8. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(2), pages 277-297.
    9. Besley, Timothy & Case, Anne, 1995. "Incumbent Behavior: Vote-Seeking, Tax-Setting, and Yardstick Competition," American Economic Review, American Economic Association, vol. 85(1), pages 25-45, March.
    10. Panu Poutvaara, 2015. "The Role of Political Parties in Rent-Seeking Societies," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 13(03), pages 23-26, October.
    11. repec:pcp:pucrev:y:2020:i:86:p:57-87 is not listed on IDEAS
    12. repec:ces:ifodic:v:13:y:2015:i:3:p:19172603 is not listed on IDEAS
    13. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-1426, November.
    14. Martin Gornig & Claus Michelsen & Kristina van Deuverden, 2015. "Local Public Infrastructure Showing Signs of Wear and Tear," DIW Economic Bulletin, DIW Berlin, German Institute for Economic Research, vol. 5(42/43), pages 561-567.
    15. Abiad (ADB), Abdul & Furceri (IMF and University of Palermo), Davide & Topalova (IMF), Petia, 2016. "The macroeconomic effects of public investment: Evidence from advanced economies," Journal of Macroeconomics, Elsevier, vol. 50(C), pages 224-240.
    16. Alvaro Jimenez & Christian Merino & Juan Carlos Sosa, 2020. "Local Public Investment Drivers in Peru," Revista Economía, Fondo Editorial - Pontificia Universidad Católica del Perú, vol. 43(86), pages 57-78.
    17. David Roodman, 2009. "How to do xtabond2: An introduction to difference and system GMM in Stata," Stata Journal, StataCorp LLC, vol. 9(1), pages 86-136, March.
    18. Can Chen, 2017. "Does money matter for infrastructure outcomes? The effects of public infrastructure finance on state infrastructure quality," Journal of Public Budgeting, Accounting & Financial Management, Emerald Group Publishing Limited, vol. 29(3), pages 375-408, March.
    19. Poterba, James M., 1995. "Capital budgets, borrowing rules, and state capital spending," Journal of Public Economics, Elsevier, vol. 56(2), pages 165-187, February.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Yihua Yu & Li Zhang & Fanghua Li & Xinye Zheng, 2013. "Strategic interaction and the determinants of public health expenditures in China: a spatial panel perspective," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 50(1), pages 203-221, February.
    2. Rabia Nazir & Muhammad Nasir & Idrees Khawaja, 2022. "Political Budget Cycle: A Sub-National Evidence from Pakistan," Journal of Business Cycle Research, Springer;Centre for International Research on Economic Tendency Surveys (CIRET), vol. 18(3), pages 343-367, November.
    3. Ouedraogo, Benoît & Ouedraogo, Idrissa & Sawadogo, Hamidou, 2025. "Effects of trade openness on income inequality in sub-Saharan Africa: direct effects and transmission channels," International Economics, Elsevier, vol. 184(C).
    4. Guglielmo Maria Caporale & Anamaria Diana Sova & Robert Sova, 2024. "The Covid‐19 pandemic and European trade flows: Evidence from a dynamic panel model," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 29(3), pages 2563-2580, July.
    5. Zheng, Xinye & Li, Fanghua & Song, Shunfeng & Yu, Yihua, 2013. "Central government's infrastructure investment across Chinese regions: A dynamic spatial panel data approach," China Economic Review, Elsevier, vol. 27(C), pages 264-276.
    6. Abdelraouf, Nadine & Noureldin, Diaa, 2022. "The impact of the exchange rate regime on the dispersion of the price-change distribution: Evidence from a large panel of countries," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 76(C).
    7. Lamar Crombach & Frank Bohn, 2024. "Uninformed voters with (im)precise expectations: Explaining political budget cycle puzzles," Economics and Politics, Wiley Blackwell, vol. 36(1), pages 275-311, March.
    8. Fendel Tanja, 2016. "Migration and Regional Wage Disparities in Germany," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 236(1), pages 3-35, February.
    9. Oriola, Hugo, 2023. "Political monetary cycles: An empirical study," European Journal of Political Economy, Elsevier, vol. 79(C).
    10. Dilla, Diana, 2017. "Staatsverschuldung und Verschuldungsmentalität [Public Debt and Debt Mentality]," MPRA Paper 79432, University Library of Munich, Germany.
    11. Mohanty, Biswajit & Bhanumurthy, N. R. & Dastidar, Ananya Ghosh, 2017. "What explains Regional Imbalances in Infrastructure?: Evidence from Indian States," Working Papers 17/197, National Institute of Public Finance and Policy.
    12. Jaanika Merikull & Tairi Room, "undated". "Are foreign-owned firms different ? Comparision of employment volatility and elasticity of labour demand," Bank of Estonia Working Papers wp2014-1, Bank of Estonia.
    13. Barrell, Ray & Nahhas, Abdulkader, 2018. "Economic integration and bilateral FDI stocks: the impacts of NAFTA and the EU," LSE Research Online Documents on Economics 90372, London School of Economics and Political Science, LSE Library.
    14. Harald Oberhofer & Marian Schwinner, 2017. "Do Individual Salaries Depend On the Performance of the Peers? Prototype Heuristic and Wage Bargaining in the NBA," WIFO Working Papers 534, WIFO.
    15. Albaladejo, Isabel P. & González-Martínez, María Isabel & Martínez-García, María Pilar, 2016. "Nonconstant reputation effect in a dynamic tourism demand model for Spain," Tourism Management, Elsevier, vol. 53(C), pages 132-139.
    16. Yerrabati, Sridevi, 2022. "Does vulnerable employment alleviate poverty in developing countries?," Economic Modelling, Elsevier, vol. 116(C).
    17. Orkhan Nadirov & Bruce Dehning, 2020. "Tax Progressivity and Entrepreneurial Dynamics," Sustainability, MDPI, vol. 12(9), pages 1-21, April.
    18. Rahman, Mizanur, 2008. "The Impact of a Common Currency on East Asian Production Networks and China’s Exports Behavior," MPRA Paper 13931, University Library of Munich, Germany.
    19. Christian Bjørnskov & Niklas Potrafke, 2012. "Political Ideology and Economic Freedom Across Canadian Provinces," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 38(2), pages 143-166.
    20. Maryam Farhadi & Rahmah Ismail & Masood Fooladi, 2012. "Information and Communication Technology Use and Economic Growth," PLOS ONE, Public Library of Science, vol. 7(11), pages 1-7, November.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • H76 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Other Expenditure Categories
    • R53 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Public Facility Location Analysis; Public Investment and Capital Stock

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:imk:wpaper:230-2026. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sabine Nemitz (email available below). General contact details of provider: https://edirc.repec.org/data/imkhbde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.