A study indicates that the debt burden of municipalities in Germany has grown significantly faster over the last decade than that of the federal states. While the municipal debt increased by 37 percent, corresponding to approximately 697 Euros per inhabitant between mid-2016 and mid-2026, the growth among the states was much smaller, rising by only nearly four percent or 280 Euros. This finding comes from an unpublished analysis by the Institute of the German Economy (IW), which the media outlet “Funke” is reporting on.
According to Björn Kauder of the IW, the rising debt in the municipalities is primarily attributed to the expansion of childcare services and the increase in social benefits over the past 25 years. However, Kauder also noted that expenditures for central administration have substantially risen in the last 20 years.
Federal states show distinct regional discrepancies in their financial health. Saarland and Rhineland-Palatinate are the only states that have successfully reduced their per capita debt. This reduction has been supported by factors including the assumption of municipal debt by the states and higher basic tax revenues. Furthermore, extensive consolidation and restructuring aid from the federal government has benefited Saarland, although the state still registers the highest per capita debt among the large states.
In contrast, Saxony maintains the lowest debt among all federal states, despite its debt nearly doubling over the past ten years. Bavaria saw its debt rise by roughly one-third, though it remains the second-lowest in comparison to other states. In Saxony-Anhalt and Brandenburg, public debt per resident increased by about a quarter, and in Schleswig-Holstein, the increase was around one-fifth.
To stabilize public finances in the long term, Kauder stated that the functions of the state and their necessity must be fundamentally reviewed and reprioritized. He added that achieving an end to the municipal financial crisis requires better-funded services for social and youth welfare. The local governments must be assessed to ensure they receive adequate financial support to fulfill these duties. Simultaneously, administrative tasks should be curtailed, and the scope of existing social benefits ought to be re-examined.
