Road to Ruin? A Spatial Analysis of State Highway Spending

Abstract

Do states engage in infrastructure expenditure competition to attract new economic activity? Economic theory is inconclusive on the matter. States might respond to increased infrastructure spending in competitor states by increasing their own infrastructure spending. Conversely, states may decrease spending in the presence of positive spillovers from competitor states' infrastructure investment. Using spatial econometric techniques and focusing specifically on highway spending, we demonstrate that states expend less on highways when spending in neighboring states increases. We explore this possibility further by modeling state personal income growth as a function of own-state and neighborstate highway spending. Our findings suggest positive spillovers influence interstate relationships for highway spending rather than race-to-the-top competition for economic activity.

Determinants of Local Highway Spending in North Carolina

“…In contrast, state highway spending was negatively related to the proportion of the population aged 5-17 years. Bruce et al (2007) were also interested in fiscal interdependence among states in highway spending. Using a later time period than Case et al, they also found a positive effect from federal grants and a positive effect from the interest cost (spending on interest payments relative to total debt), and a negative impact from miles driven.…”

“…Another issue was the potential impact of highway spending in adjacent counties. Previous analyses of highway spending at the state level have found positive spillovers from spending in adjacent states (Bruce et al 2007;Case, Rosen, and Hines 1993). To test for this adjacent, or proximity, effect in our county level analysis, we included the average construction spending per capita in bordering counties in the construction equation and the average maintenance spending per capita in bordering counties in the maintenance equation as explanatory variables.…”

Why buy what you can get for free? The effect of foreign direct investment on state patent rates

“…Figlio and Blonigen (2000) find that increases in FDI lowers per capita county-government expenditures as money is redirected to pay for incentives to lure the foreign firms within their boundaries. Additionally, work by Bruce et al (2007) suggests because state economic growth benefits from neighboring state expenditures in highway funding, states would decrease their own funding of highways when neighbors increased theirs. Our own data confirms a similar 'redistribution effect'; by running a simple regression of the average percent of academic R&D financed by state and local government on average FDI we found that a 1% increase in FDI is associated with a 0.55% decrease in the percent of R&D financed by state and local governments.…”

Easy Money: Tax Exporting and State Support for Higher Education

“…The parameters and are mean‐zero, random error terms. Lagging the regressors by one year is a common approach taken in the literature because it allows for the possibility that policymakers cannot immediately adjust state policy in response to changes in economic, demographic, and political parameters (Bruce et al., ). The equation for the median voter's tax price is estimated via ordinary least squares.…”