Municipal finances in 2024: Status quo and outlook

In 2024, the core budgets of German municipalities reported an overall deficit of 24.3 billion euros, which is characterized by pronounced differences at the state, regional and local levels. 
In his article for the current edition of the Journal of Public Finance and Fiscal Federalism, Dominik Frankenberg discusses the causes and implications of the persistent disparities between municipalities.

The article addresses, among other things, that:

• the "cameralistic" deficit in the financial accounts does not reveal that the degradation of infrastructure has at best been slowed down – and this particularly affects financially weak municipalities;
• one reason for the high backlog in investment is the continued rise of social and personnel expenditures – while revenues have remained nearly stagnant;
• urban areas are more severely affected by the unfavorable budgetary developments than rural regions, although high investment backlogs affect municipalities in all regions;
• if the deficit path continues, investments could gradually be used as a buffer for consolidation.

In order to strengthen the municipalities’ capacities for self-governance and problem-solving, the article proposes a set of policy measures that address the root causes. These include both fiscal measures (e.g., reform of social burden financing, increasing and stabilizing the municipalities’ own financial capacities) and non-monetary measures (e.g., reduction of administrative burdens).
The current issue of the Journal of Public Finance and Fiscal Federalism can be found here and further information on the project ”Financial resources and scope for action of rural municipalities“ here.

Contact: Dr. Dominik Frankenberg