The Economics and Politics of State and Local Infrastructure Investment

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9511125 Inman and Haughwout Investment in public infrastructure has become one of significant policy concern. The two central questions addressed by the proposed research agenda are: 1) Do we have a public infrastructure crisis? 2) If so, what government actions, including incentives, can best encourage appropriate types and levels of expenditures on public infrastructure? First, to address the crisis question, the researchers identify the benefits of public infrastructure investment. Does public structure investment increase the income of individuals and businesses in the impacted area or not? The researchers expect that positive benefits from public infrastructure investment will accrue to large urban areas and negative benefits to rural areas. As a result of these possible offsetting effects, uniform government policies to encourage infrastructure investment will have zero impact on productivity and income for the country as a whole. If their predictions are confirmed, government policies need to be carefully formulated to differentiate between large urban and rural areas. The benefits of public structure infrastructure on individual households are examined, by considering the impact of such investment on housing prices and local labor markets. Second, the researchers will look at the effect of federal tax and grants policies on state and local public infrastructure expenditures. Their proposed research recognizes that elected-body officials at the state and local level will vote-trade or be willing to favor another official's program in return for support of their own favored program. An analysis of state and local public infrastructure decisions capturing such behavior will hopefully allow for better design of federal programs.