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Local government finances are always a cause for concern. But this time it's different. Due to the ongoing economic slump, revenues are stagnating while social spending is soaring – it's a perfect storm. Local government budgets are literally falling apart. In North Rhine-Westphalia, this is particularly ironic given that the state government has just introduced a scheme to partially assume local government debts up to and including 2023. However, borrowing is growing again at an unprecedented rate due to the anticipated surge in local government costs in 2024 and 2025. Michael Thöne explains on WDR and at the Kommunalforum of LAG 21 in Düsseldorf that as long as the structural problems remain unresolved, this situation could repeat itself over and over again. Here is his updated slide set.

A dual intergenerational perspective on tax morale research characterised the FiFo visit by Tomomi Miyazaki, Professor of Public Finance at Kobe University and Bruegel Fellow. On the one hand, this enabled him to visit the long-standing ‘place of work’ of the renowned tax psychologist, FiFo Director and behavioural economist avant la lettre, Günter Schmölders. On the other hand, the discussion with the current FiFo team soon turned to the Japanese-German parallel of whether and to what extent tax morale is also influenced by intergenerational issues and perceived imbalances between young and old people. In this respect, research in both countries still has much to learn.

A significant amount of funding has recently been allocated to defence and to addressing the substantial backlog in equipment. However, this is only the first step. At the 42nd Saxony-Anhalt Security Policy Forum, Lutz-Georg Berkling, Hans-Joachim Schaprian, Rüdiger Erben and Michael Thöne will discuss how this power can be utilised effectively. The big questions that remain after the issue of funding has been addressed are summarised in the FiFo overview.

Local government finances in Germany are on a rollercoaster ride. Last year's record deficits, driven largely by social spending, are continuing. The ‘investment booster’ threatens large additional tax losses. On the other hand, the infrastructure package promises relief for local government investment gaps. And in the talks with the federal states, the Chancellor has promised compensation for municipal tax losses. Any short-term relief is welcome to those affected. However, the structural problem of the missing and unachievable connectivity between the federal government and the municipalities requires a structural solution, states Michael Thöne in heute journal up:date. He explains further on LinkedIn.

Municipal investment and large investment backlogs are well-known indicators of the financing and implementation constraints faced by German cities, municipalities and districts. The federal government's €500 billion infrastructure package is intended to provide some support in this area, too. However, the municipal infrastructure of the future will differ greatly from that of the past. In particular, it will be important to transform long-lived capital stock towards climate neutrality and avoid carbon lock-ins. The associated public finance and local political challenges were examined in a research project funded by the Sparkassen-Finanzgruppe's Stiftung für die Wissenschaft – see the new FiFo Report No. 37.