To What Extent Can Long-Term Investment in Infrastructure Reduce Inequality?

E. Hooper, S. Peters and Patrick Pintus

Working papers from Banque de France

Abstract: By reviewing US state-level panel data on infrastructure spending and on per capita income inequality from 1950 to 2010, this paper sets out to test whether there is an empirical link between infrastructure and inequality. Our main result, obtained from panel regressions with both state and time fixed effects, shows that highways and higher education spending growth in a given decade correlates negatively with Gini indices at the end of the decade. Such a finding suggests a causal effect from growth in infrastructure spending to a reduction in inequality, through better access to job and education opportunities. More significantly, this relationship is stronger with inequality at the bottom 40 per cent of the income distribution. In addition, infrastructure expenditures on highways are shown to be more effective at reducing inequality. A counterfactual experiment reveals which US states ended up with a significantly higher bottom Gini coefficient in 2010 that is attributed to underinvestment in infrastructure over the first decade of the 21st century. From a policy making perspective, this paper aims to present innovations in finance for infrastructure investments, for the US, other industrially advanced countries and also for developing economies.

Keywords: Public Infrastructure; Education; Highways; Income Inequality; US State Panel Data; Fixed Effects Models. (search for similar items in EconPapers)
JEL-codes: C23 D31 H72 I24 O51 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2017
New Economics Papers: this item is included in nep-edu, nep-pbe, nep-pke and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
https://publications.banque-france.fr/sites/defaul ... documents/wp_624.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:624

Access Statistics for this paper

More papers in Working papers from Banque de France Banque de France 31 Rue Croix des Petits Champs LABOLOG - 49-1404 75049 PARIS. Contact information at EDIRC.
Bibliographic data for series maintained by Michael brassart ().