Germany Invests Less in Public Infrastructure than Other Countries

Productivity in Germany has been dragged down by inadequate investment in public infrastructure. Public investment declined in the 1990s and, since then, has barely been enough to offset depreciation. This puts Germany near the bottom of advanced economies in public investment. Money that has been budgeted for investment is routinely underspent, often because of staff shortages in municipalities.

To boost public investment, Germany could expand municipalities’ planning capacity through consulting services programs like Partnerschaft Deutschland. Germany could increase financing for public investment by reforming other expenditures, mobilizing more revenue, or adjusting the debt brake limits on federal borrowing, as explained in our most recent staff report. The debt brake could be eased by around 1 percent of GDP while still allowing public debt to decline as a share of GDP.

Productivity could also be enhanced by cutting red tape, which is a barrier to both investment and starting new businesses. For example, it takes about five to six years to get permission to build an onshore wind farm. And it takes 120 days to obtain a business license, more than double the OECD average.

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