The impact of infrastructure investments on income inequality: Evidence from US states

Emma Hooper, Sanjay Peters and Patrick Pintus
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Emma Hooper: AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique
Sanjay Peters: Columbia University [New York]

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Abstract: Our analysis of US state-level data on an annual frequency, from 1976 to 2008, sheds new light on a plausible causal link between infrastructure investments, namely public spending on highways, and income inequality. This causal relationship is drawn out using the number of seats in the US House of Representatives Committee on Appropriations (HRCA) as an instrument to identify quasi-random variations in state-level spending on highways. An exogenous pattern which emerges when a state gains an additional member to the HRCA is that it is allocated with new federal grants. This increase in federal transfers for infrastructure financing results in slashing of expenditures on highways and a crowding-out effect of federal funding for state investments on highways. Spending cuts on highways produced by a new HRCA member being attained by a state can unwittingly cause income inequality to rise over a short 2-year time horizon. Similar challenges with decentralized development to finance infrastructure via federal transfers to state and sub-national governments may be encountered by other industrially advanced, emerging and low-income developing economies. US data over the mentioned period reveal a strong positive correlation with state spending on highways and wages paid for construction jobs. Suggestive evidence indicates that the construction sector also plays an important role in the transmission channel from a rise in state spending on highways to lowering income inequality, albeit during specific intervals, as opposed to on a long-term basis.

Keywords: highways; income inequality; instrument variable; public infrastructure; US state panel data (search for similar items in EconPapers)
Date: 2021-04
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Citations: View citations in EconPapers (2)

Published in Economics of Transition and Institutional Change, 2021, 29 (2), pp.227-256. ⟨10.1111/ecot.12266⟩

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Related works:
Working Paper: The Impact of Infrastructure Investments on Income Inequality: Evidence from US States (2020)
Working Paper: The Impact of Infrastructure Investments on Income Inequality: Evidence from US States (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-03015354

DOI: 10.1111/ecot.12266

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