Long-run relationship between investment and maintenance in local governments

Purpose - The purpose of the paper is to analyze the relationship between maintenance of existent and investment in new infrastructure in Norwegian local governments. Design/methodology/approach - A reduced form vector autoregressive system is estimated using a 29-year-long panel data set for the Norwegian local governments. Findings - The data reveal that increased investment in new infrastructure sparks little, if any, increase in maintenance. The results also indicate that increased maintenance expenditures spark new investments. Because more investments mean more infrastructure and adequate maintenance should give that investments are not caused by maintenance, the results suggest that the local governments have not optimized their maintenance scheduling in this period. Originality/value - Even though maintenance and investment are large expenditures that both serve as inputs to the stock of infrastructure, little is known about the relationship between the two. The findings in this paper suggests that Norwegian local governments have not planned their maintenance and investments well in the past, and this can be part of the explanation as to why local public infrastructure in Norway is presently in poor condition.