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On the Economic and Fiscal Effects of Investment in Road Infrastructure in Portugal

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Author Info
Alfredo M. Pereira () (Department of Economics, College of William and Mary)
Jorge M. Andraz () (Faculdade de Economia, Universidade do Algarve)

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Abstract

The objective of this paper is to investigate the economic and fiscal impact of road infrastructure investment in Portugal, focusing on the effects for each region of both local investments and investments in other regions. We estimate VAR models for the national economy as well as for each of the five administrative regions in the country. Empirical results suggest that investment in road infrastructures has been a powerful instrument to increase private investment, new permanent jobs and to promote long-term growth in all regions. More importantly, investment in road infrastructure, both at the aggregate level and for each one of the five administrative regions, generates fiscal effects that largely exceed the initial investment itself. Accordingly, there is no trade off in the long-term between the potentially positive economic effects and the potentially negative budgetary effects of such investments, i.e., both economic and budgetary effects are positive. As a corollary, policies that would reduce current road investment as a response to the current budgetary concerns will result in lower long-term growth as well as worse future budgetary conditions.

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Publisher Info
Paper provided by Department of Economics, College of William and Mary in its series Working Papers with number 33.

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Length: 22 pages
Date of creation: 13 Jul 2006
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Handle: RePEc:cwm:wpaper:33

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Related research
Keywords: public invesetment road transportation infrastructure regional spillovers Portugal

Find related papers by JEL classification:
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions
H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
R53 - Urban, Rural, and Regional Economics - - Regional Government Analysis - - - Public Facility Location Analysis; Public Investment and Capital Stock

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  1. Rudebusch, Glenn D, 1998. "Do Measures of Monetary Policy in a VAR Make Sense?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 907-31, November.
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  2. Gonzalo, Jesus & Lee, Tae-Hwy, 1998. "Pitfalls in testing for long run relationships," Journal of Econometrics, Elsevier, vol. 86(1), pages 129-154, June. [Downloadable!] (restricted)
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  3. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 1998. "Monetary Policy Shocks: What Have We Learned and to What End?," NBER Working Papers 6400, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Alfredo M. Pereira & Jorge M. Andraz, 2004. "Public highway spending and state spillovers in the USA," Applied Economics Letters, Taylor and Francis Journals, vol. 11(12), pages 785-788, October. [Downloadable!] (restricted)
  5. Alfredo M. Pereira & Jorge M. Andraz, 2005. "Public Investment in Transportation Infrastructure and Economic Performance in Portugal," Review of Development Economics, Blackwell Publishing, vol. 9(2), pages 177-196, 05. [Downloadable!] (restricted)
  6. Christiano, Lawrence J & Eichenbaum, Martin & Evans, Charles, 1996. "The Effects of Monetary Policy Shocks: Evidence from the Flow of Funds," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 16-34, February. [Downloadable!] (restricted)
    Other versions:
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