Expert commentary on the renovation gap in German public infrastructure, by the German Institute for Economic Research

Summary:

In economic and fiscal policy discussions about public investment in Germany, reference is frequently made to exist renovation gaps in public infrastructure. To date, however, no one – including official statistics authorities, the federal government and other institutions – has conducted a uniform, complete and systematic survey to determine a methodologically derived target state for public infrastructure in Germany. Therefore, in this expert commentary, the German Institute for Economic Research presents a methodologically grounded and empirically applicable definition for the “renovation gap” (Sanierungslücke in German) in German public infrastructure. We describe the renovation gap as the difference between “renovated” capital stock and “effective” (i.e. as-is) capital stock. Under this definition, renovated capital stock corresponds to the hypothetical value of the capital stock if no asset erosion had occurred. Thus the definition for renovation gap goes beyond the mere functionality of infrastructure assets. In conceptual terms, the amount of capital stock needed to close the renovation gap must therefore be understood as an upper limit, which is not necessarily identical to the target state as understood in terms of welfare theory or social desirability.

The analysis shows that current usages of the term “renovation gap” do not constitute direct measurements of an unambiguously defined/definable quantity or condition. Rather, the varied usages refer to approximations of technical conditions, needed investments or rehabilitation costs in connection with public infrastructure. The associated methodologies differ not only across infrastructure sectors but also within each sector. The infrastructure sectors discussed here differ not only in terms of the availability and quantity of empirical studies, but also in terms of their basic conceptual suitability for renovation gap analysis. Most studies do not quantify the effective/as-is capital stock, nor do they specify the exact reference capital stock they are using as a basis for determining the renovation gap. Instead, estimates by infrastructure companies frequently set a minimum level for the desired target state without explicitly identifying this target level as renovated capital stock. Therefore, the necessary investment amounts set out in studies often fail to provide an adequate basis for quantifying the renovation gaps that need to be closed, or such renovation gaps can be derived only if additional assumptions are made.

Full text of the expert commentary on the renovation gap in German (German Institute for Economic Research, 2 July 2026): download [PDF, 447 KB]