Net government investment has been low in the past 15 years and declined markedly
at the level of the municipalities in the first half of the 2000s.
While survey evidence suggests that the quality of German transport infrastructure continues to rank
highly, there is some indication that maintenance standards have fallen (BMVI 2015).
Moreover, there is scope to raise provision of social infrastructure which is key to raise
long-term inclusive growth. For example, in 2014, only 33% of children under the age of 3
were enrolled in day care and only 53% of elementary schools offered full-day schooling,
although supply has improved considerably over the past 10 years.
The subnational government levels contribute to the funding of transport and key social infrastructure.
Municipalities which invest less tend to be those with weak budgetary positions, are in
relatively poor regions, and have relatively high spending on social cash transfers (which
are often mandated at the federal level, but are the responsibility of municipalities).
(Arnold et al., 2015).
Fiscal federal transfers broadly equalise tax revenues per capita across
the Länder but do not take into account differences in federally mandated social cash
transfer spending. This reduces budgetary space for investment spending in municipalities
where such transfer spending is high.