Politics and public infrastructure investments in local governments : empirical evidence from Flemish municipalities (1996-2006)

In this paper, we estimate a public infrastructure investment function using a panel data set of 307 Flemish municipalities for the period 1996-2006. We particularly draw attention to political determinants of public infrastructure investment decisions. We show that the characteristics of the government, such as partisan affiliation and fragmentation, affect the level of public infrastructure investments Local governments are also sensitive to the investment policy of neighbouring municipalities. There is a positive interaction effect that changes own investments by 20% of that of neighbouring municipalities. Finally, elections obviously have an impact on investment policy. Investments increase the nearer elections come, with highest investments in the year before elections