Municipal budget strategies and local economic growth

Local governments invest heavily in economic development, yet such spending often fails to generate entrepreneurial activity. Analysing 336 Dutch municipalities using fuzzy-set qualitative comparative analysis, this study identifies multiple, size-specific configurations of infrastructure and business-climate spending that are sufficient for higher new firm formation. Effectiveness depends on how spending aligns with local fiscal and institutional capacity, not on any single policy lever. We conceptualise this as a capacity logic of public investment, showing that different capacity regimes enable distinct causal pathways to entrepreneurship. This reframes local development from universal best practices to capacity-contingent policy design.