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Fiscal sustainability and the composition of government investment: The case of investment in road infrastructure

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  • Välilä, Timo

Abstract

Road is the dominant mode of transport, and most investment in road infrastructure is undertaken by governments. Fiscal policy considerations exert therefore a profound impact on the size and quality of road networks. To understand the observed steep downtrends and volatility in road infrastructure investment in Europe since the financial crisis, this paper presents long- and shorter-term panel data analyses of their determinants. The results suggest that investment in road infrastructure is used by governments as an instrument to address fiscal debt sustainability concerns and to smooth out swings in government debt. Investment in road infrastructure also competes with other types of government investment, with a high negative elasticity with respect to investment in health and education. These results are striking in light of the high social cost of congestion, accidents, and other related negative externalities, but their welfare implications are not straight-forward to infer, including as higher road infrastructure investment may only have a limited and variable impact on congestion due to induced travel demand.

Suggested Citation

  • Välilä, Timo, 2024. "Fiscal sustainability and the composition of government investment: The case of investment in road infrastructure," Transport Policy, Elsevier, vol. 145(C), pages 105-125.
    • Handle: RePEc:eee:trapol:v:145:y:2024:i:c:p:105-125
    DOI: 10.1016/j.tranpol.2023.10.001
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    Keywords

    Road infrastructure investment; Fiscal policy; Composition of public investment;
    All these keywords.

    JEL classification:

    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • R42 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government and Private Investment Analysis; Road Maintenance; Transportation Planning
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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