Subnational Infrastructure Investment in OECD Countries: Trends and Key Governance Levers

Public investment is one of the fiscal tools with the strongest impacts on growth over the long term. However, public investment is in decline compared to the period prior to the 2008 global financial crisis in many OECD countries, and particularly in the EU. The main explanation for the decreased resources available for investment comes from the expenditure side. Subnational governments (SNGs)—defined as all levels of government (regional and local) below the national level, are responsible for a large share of public investment: on average, around 60 per cent in the OECD. Most of this public investment goes to infrastructure. This particular role of SNGs poses specific challenges for both the financing and governance of infrastructure investment. This paper focuses on subnational public investment in OECD countries and the EU, and shows that subnational governments have decreased their capital expenditures after 2010. This adjustment has been larger than at the central government level. The paper argues that only a limited diversification of public investment financing has occurred since 2010. The paper also argues that, beyond the sheer volume of investment spending, the governance of subnational investment is essential to efficient public investment. Based on a 2015 survey of 255 subnational governments in the EU, this paper explores specific challenges that subnational governments encounter in managing capital expenditures, , and possible ways to improve the quality of governance of subnational investments.