Municipal Investment: Potential and Limitations of the Special Fund for Infrastructure and Climate Neutrality

Geraldine Dany-Knedlik, Martin Gornig, Angelina Hackmann and Teresa Schildmann

DIW Weekly Report, 2026, vol. 16, issue 16/17, 145-154

Abstract: Municipalities play a key role in providing public services, but despite rising gross investment, there is a significant erosion of assets: real investment growth remains insufficient and net investment continues to be negative. The Special Fund for Infrastructure and Climate Neutrality (SVIK) can help strengthen local government investment activity and reduce regional disparities. Based on a scenario analysis at the district level, it is shown that the SVIK impact depends crucially on the use of funds for additional investments and the district-specific investment ratio. While full utilization for additional investments would provide significant impetus, enabling districts with low investment levels to catch up to a certain extent, the effects remain moderate if only partial additional investments are made and regional disparities hardly decrease. However, for the investments to be fully additional, municipalities need better funding, reliable support structures, and capacity building in planning and procurement.

Keywords: Municipal investment; local public finance; infrastructure investment; fiscal federalism; investment backlog; special funds; additionality; regional disparities (search for similar items in EconPapers)
JEL-codes: H54 H72 H77 R51 R58 (search for similar items in EconPapers)
Date: 2026
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