The Case of Public Capital Budgeting and Management Process in Germany

The Case of Public Capital Budgeting and Management Process in Germany

Natalia B. Ermasova (Governors State University, USA)
Copyright: © 2019 |Pages: 24
DOI: 10.4018/978-1-5225-7329-6.ch003

Abstract

This chapter presents an analysis of four main components of the German capital budgeting system including (1) long-term public capital planning, (2) annual public budgeting and financing, (3) project execution, and (4) public infrastructure evaluation. Germany provides good conditions for capital investments. This chapter explains main reasons for it: institutional framework, healthy public finance, structural reform, and special investment and redemption fund that gave a boost to investments in infrastructure. This case describes the capital budgeting process in Germany and explains the recent trends of public capital investments.
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Background

Germany has Europe's largest economy and second most populous nation (80,594,017 people). Germany is a key member of the continent's economic, political, and defense organizations (CIA, 2018). Germany was in two devastating World Wars in the first half of the 20th century. After World War II, two German states were formed in 1949, the western Federal Republic of Germany (FRG) and the eastern German Democratic Republic (GDR). The democratic FRG embedded itself in key western economic and security organizations, the European Community (EC), which became the European Union (EU), and NATO, while the communist GDR was on the front line of the Soviet-led Warsaw Pact (CIA, 2018). Germany had the reunification in 1990. Based on the Consolidation Assistance Act (Gesetz zur Gewährung von Konsolidierungshilfen), the federal government provides a fixed amount of financial assistance to five regions (Länder) that were parts of the eastern German Democratic Republic with the goal to eliminate the structural deficit in those five Länder by 2020. Since 1990, Germany has expended considerable funds to bring eastern productivity and wages up to western standards.

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