Roads to Prosperity or Bridges to Nowhere? Theory and Evidence on the Impact of Public Infrastructure Investment

Public infrastructure investment often plays a prominent role in countercyclical fiscal policy. In the US during the Great Depression, programs such as the Works Progress Administration and the Tennessee Valley Authority were key elements of the government's economic stimulus. In the Great Rece...

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Bibliographic Details
Published in:NBER macroeconomics annual 2013-01, Vol.27 (1), p.89-142
Main Authors: Leduc, Sylvain, Wilson, Daniel
Format: Article
Language:English
Subjects:
Analytical forecasting
Economic models
Economic recessions
Fiscal policy
Funding
Government
Government spending
Grants
Great Depression
Gross domestic product
Highways
Infrastructure
Public capital
Recessions
Roads & highways
State government
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Summary:Public infrastructure investment often plays a prominent role in countercyclical fiscal policy. In the US during the Great Depression, programs such as the Works Progress Administration and the Tennessee Valley Authority were key elements of the government's economic stimulus. In the Great Recession, government spending on infrastructure projects was a major component of the 2009 stimulus package. This paper examines the dynamic macroeconomic effects of infrastructure investment both empirically and theoretically. It first provides an empirical analysis using a rich and novel data set at the state level on highway funding, highway spending, and numerous economic outcomes. They focus on highways both because they are the largest component of public infrastructure in the US and because the institutional design underlying the geographic distribution of US federal highway investment helps us identify shocks to state infrastructure spending.
ISSN:0889-3365
1537-2642
DOI:10.1086/669173