Public Investments in Infrastructure: Development, Causal Factors and Growth Effects

Study commissioned by the Federal Ministry of Economics and Technology The Ifo institute, Dresden branch has been commissioned by the Federal Ministry of Economics and Technology to conduct an analysis concerning public infrastructure investments in Germany in cooperation with Prof. Bernhard Wieland. The goal was to explain the ongoing drop in (public) infrastructure investments. The focus lies on answering the question whether this is a “quasi-natural” development in a developed economy, or whether specific factors in Germany cause the low level of infrastructure investments. The study is based on an analysis of the growth effects of infrastructure investments. Apparently, growth effects are often overestimated. The causes for the decline in infrastructure investments in Germany are identified by ten hypotheses. It is partly due to reasons that do not require direct political action, as “saturation”. In addition, outsourcing from public budgets that cannot be captured by statistics anymore, as well as changed fiscal and macroeconomic conditions are major causes. From the assessment of the ten hypothesis, political needs for action are derived. These contain administrative simplification of the investment processes, improved municipal budgets and an intensified use of fee-funding to manage capacity utilization.