Politics and Public Infrastructure Investments in Local Governments: Empirical Evidence from Flemish Municipalities (1996–2009)

This article offers new evidence on the political determinants of local government's public investment policy. A public infrastructure investment function was estimated using data for 307 out of 308 Flemish municipalities covering the period 1996–2009. The results reveal that government composition and the timing of the elections matter. The presence of the Liberal Party decreases investments, whereas fragmentation of the government has the opposite effect. Significantly higher investment levels were recorded in years preceding elections contrary to post-election years, which show important slowdown in investment policies. Finally, the analysis shows that local governments are sensitive to the investment policy of neighbouring municipalities. The positive spatial interaction effect implies that a municipality's investments increase on average with 26.2% of changes in investment levels by neighbouring municipalities.