Abstract
: The article examines the fiscal adjustments necessary in East Germany to ensure that the East German state and local government sector runs a sustainable fiscal policy in the next decades and maintains a high level of public investment expenditures. The latter is of special importance in East Germany because in some areas the public infrastructure capital stock in East Germany is still deficient as compared to West German standards. In addition, regional development policy still uses capital subsidies to attract mobile business capital to East Germany. These subsidies are co-financed by the East German state governments, the federal government as well as the EU. We derive a sustainable time path of primary expenditures in East Germany and estimate the volume of investment expenditures that can be financed without violating fundamental sustainability restrictions. In addition, we inspect the fiscal federalism perspective of public investment taking into account the specific institutional settings in Germany.
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