Using data from the 545 largest European cities, we study whether the expansion of their highway capacity provides a solution to the problem of traffic congestion. Our results confirm that in the long run, and in line with the ‘fundamental law of highway congestion’, the expansion in cities of lane kilometres causes an increase in vehicle traffic that does not solve urban congestion. We disentangle the increase in traffic due to the increases in coverage and in capacity. We further introduce road pricing and public transit policies in order to test whether they moderate congestion. Our findings confirm that the induced demand is considerably smaller in cities with road pricing schemes, and that congestion decreases with the expansion of public transportation.

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We estimate the effects of highways on the suburbanization of Spanish cities. First, we extend previous findings for the US and China by providing evidence for Europe: each additional highway ray built between 1991 and 2006 produced a 5 per cent decline in central city population between 1991 and 2011. Second, our main contribution is at the intrametropolitan level. We find that highway improvements influence the spatial pattern of suburbanization: suburban municipalities that were given improved access to the highway system between 1991 and 2006 grew 4.6% faster. The effect was most marked in suburbs located at 5-11 km from the central city (7.1%), and concentrated near the highways: population spreaded out along the (new) highway segments (4.7%) and ramps (2.7%). To estimate the causal relationship between population growth and highway improvements, we rely on an IV estimation. We use Spain's historical road networks -Roman roads, 1760 main post roads, and 19th century main roads -to construct our candidates for use as instruments.JEL Codes: R4, O2