To what extent can long-term investments in infrastructure reduce inequality?

Emma Hooper, Sanjay Peters, Patrick Pintus

Article ID: 858
Vol 2, Issue 2, 2018

VIEWS - 1485 (Abstract) 548 (PDF)

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 an empirical link exists between infrastructure and inequality. Panel regressions with fixed effects show that an increase in the growth rate of spending on highways and higher education in a given decade correlates negatively with Gini indices at the end of the decade, thus suggesting a causal effect from growth in infrastructure spending to a reduction in inequality through better access to education and opportunities for employment. More significantly, this relationship is more pronounced with inequality at the bottom 40 percent of the income distribution. In addition, infrastructure expenditures on highways are shown to be more effective at reducing inequality. By carrying out a counterfactual experiment, the results show that those US states with a significantly higher bottom Gini coefficient in 2010 had underinvested in infrastructure during the previous decade. From a policy-making perspective, new innovations in finance for infrastructure investments are developed, 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

Full Text:

PDF


References


Aghion P and Bolton P (1992). “Distribution and growth in models of imperfect capital markets”. European Economic Review, 36(2–3): 603–611. doi: 10.1016/0014-2921(92)90118-G.

_____ (1997). “A theory of trickle-down growth and development”. The Review of Economic Studies, 64(2): 151–172. doi: 10.2307/2971707.

Aghion P, Boustan L, Hoxby C, et al. (2009). “The causal impact of education on economic growth: Evidence from US”. Mimeo. Cambridge, MA, USA: Harvard University.

Arezki R, Bolton P, Peters S, et al. (2017). “From global savings glut to financing infrastructure: The advent of investment platforms”. Economic Policy, 32(90): 221–261. doi: 10.1093/epolic/eix005.

Aschauer DA (1989). “Does public capital crowd out private capital?” Journal of Monetary Economics, 24(2): 171–188. doi: 10.1016/0304-3932(89)90002-0.

Atkinson AB (1997). “Bringing income distribution in from the cold”. The Economic Journal, 107(441): 297–321. doi: 10.1111/j.0013-0133.1997.159.x.

Atkinson AB and Bourguignon F (2015). “Income distribution and economics”. In: Atkinson A and Bourguignon F (eds.). Handbook of Income Distribution. Volume 1. Amsterdam, Netherlands: Elsevier North Holland.

Bahety G, Giesing Y, Kayihan E., et al. (2012). “The causal relationship between inequality and growth: Literature review”. OECD Project. Paris, France: The Organisation for Economic Co-operation and Development.

Bajar S and Rajeev M (2015). “The impact of infrastructure provisioning on inequality: Evidence from India”. Working Paper Number 35, July 2015. The ILO and Global Labour University.

Banerjee AV and Newman AF (1993). “Occupational choice and the process of development”. Journal of Political Economy, 101(2): 274–298. doi: 10.1086/261876.

Becker G (1964). “Human capital: A theoretical and empirical analysis, with special reference to education”. Chicago, IL, USA: The University of Chicago Press.

Bénabou R (1996). “Inequality and growth”. NBER Macroeconomics Annual. 11(1996): 11–74. doi: 10.1086/654291.

Berg A, Loungani P and Ostry J (2017). “Inequality: Causes, consequences, and cures”. New York, NY, USA: Columbia University Press. Forthcoming.

Bom PRD and Ligthart JE (2008). “How productive is public capital? A meta-analysis”. CESifo Working Paper Series, WP No. 2206. CESifo Group Munich.

Bourguignon F (1996). “Comment on ‘Inequality, poverty, growth: Where do we stand?’” In: Bruno M and Pleskovic B (eds.). Annual World Bank Conference on Development Economics 1995. pp. 46–49. Washington, DC, USA: World Bank.

Calderón C and Chong A (2004). “Volume and quality of infrastructure and the distribution of income: An empirical investigation”. The Review of Income and Wealth, 50(1): 87–106. doi: 10.1111/j.0034-6586.2004.00113.x.

Calderón C and Servén L (2004). “The effects of development on growth and income distribution”. World Bank Policy Research Working Paper No. 3400. Washington, DC, USA: World Bank. doi: 10.1596/1813-9450-3400.

_____ (2014). “Infrastructure, growth, and inequality: An overview”. World Bank Policy Research Working Paper Series No. 7034. Washington, DC, USA: World Bank.

Chetty R and N Hendren N (2015). “The effects of neighborhoods on intergenerational mobility: Childhood exposure effects and county level estimates”. Mimeo. Cambridge, MA, USA: Harvard University.

Cohen L, Coval J and Malloy C (2011). “Do powerful politicians cause corporate downsizing?” Journal of Political Economy, 119(6): 1015–1060. doi: 10.1086/664820.

d’Hombres B, Weber A and Elia L (2012). “Literature review on inequality and the impact on social outcomes”. JRC Scientific and Policy Reports. Brussels, Belgium: European Commission. doi: 10.2788/62003.

Dupor B (2017). “So, why didn’t the 2009 Recovery Act improve the nation’s highways and bridges?” Review (Federal Reserve Bank of St. Louis), 99(2): 169–182. doi: 10.20955/r.2017.169-182.

Dupor B and Mehkari MS (2015). “Schools and stimulus”. Working Paper 2015-004A. St. Louis, MO, USA: Federal Reserve Bank of St. Louis. doi: 10.20955/wp.2015.004.

Ehrhart C (2009). “The effects of inequality on growth: A survey of the theoretical and empirical literature”. ECINEQ Working Paper Series WP 2009-107. Verona, Italy: The Society for the Study of Economic Inequality.

Fields GS (2001). “Distribution and development: A new look at the developing world”. Cambridge, MA, USA: The MIT Press.

Forbes KJ (2000). “A reassessment of the relationship between inequality and growth”. American Economic Review, 90(4): 869–887. doi: 10.1257/aer.90.4.869.

Galor O and Zeira J (1993). “Income distribution and macroeconomics”. The Review of Economic Studies, 60(1): 35–52. doi: 10.2307/2297811.

Gibson J and Roja F (2014). “A bridge to equality: How investing in infrastructure affects the distribution of wealth”. Atlanta, GA, USA: Georgia State University.

Gutman J, Sy A and Chattopadhyay S (2015). “Financing African infrastructure: Can the world deliver?” Washington, DC, USA: Global Economy and Development at Brookings.

Hooper E, Peters S and Pintus P (2018). The causal effect of infrastructure investments on income inequality: Evidence from US states. AMSE Working Paper 2018 Nr. 01. Marseille, France: Aix-Marseille School of Economics.

Kaldor N (1960). Essays on value and distribution. Glencoe, IL, USA: The Free Press of Glencoe.

Kanbur R and Lustig NC (1999). “Why is inequality back on the agenda?” Annual World Bank Conference on Development Economics, 28–30 April. Washington, DC, USA: World Bank.

Kanbur R and Stiglitz J (2015). Wealth and income distribution: New theories needed for a new era. CEPR Policy Portal, 18 August. London, UK: VoxEU.

Knight B (2002). “Endogenous federal grants and crowd-out of state government spending: Theory and evidence from the federal highway aid program”. The American Economic Review, 92(1): 71–92. doi: 10.1257/000282802760015612.

Kuznets S (1955). “Economic growth and income inequality”. The American Economic Review, 45(1): 1–28.

Leduc S and Wilson D (2015). “Are state governments roadblocks to federal stimulus? Evidence on the flypaper effect of highway grants in the 2009 Recovery Act”. San Francisco Fed Working Paper 2013-16. San Francisco , CA, USA: Federal Reserve Bank of San Francisco.

Lee K, Miguel E and Wolfram C (2016). “Experimental evidence on the demand for and costs of rural electrification”. NBER Working Paper 22292. Cambridge, MA, USA: National Bureau of Economic Research. doi: 10.3386/w22292.

Li H and Zou H-F (1998). “Income inequality is not harmful for growth: Theory and evidence”. Review of Development Economics, 2(3): 318–334. doi: 10.1111/1467-9361.00045.

Milanovic B (2016). Global inequality: A new approach for the age of globalization. Cambridge, MA, USA: Harvard University Press. doi: 10.4159/9780674969797.

Peters S (2017). “Sovereign wealth funds and long-term investors in infrastructure: Why the glaring absence?” In: Rietveld M and Toledano P (eds.). Frontiers of Sovereign Investment. New York, NY, USA: Columbia University Press. pp. 202–228. doi: 10.7312/riet17750-014.

Peters S and Pintus P (2016). “Migrants and Europeans need EU commitment to infrastructure investment”. Op ed, 24 June, 2016.

_____ (2018). “Infrastructure investments: A broad-based policy tool for equitable and sustainable growth”. FES International Policy Analysis, January 2018. Bonn, Germany: Friedrich-Ebert-Stiftung.

Piketty T (1997). “The dynamics of the wealth distribution and the interest rate with credit rationing”. The Review of Economic Studies, 64(2): 173–189. doi: 10.2307/2971708.

_____ (2014). Capital in the twenty-first century. Cambridge, MA, USA: Harvard University Press. doi: 10.4159/9780674369542.

Piketty T, Saez E and Zucman G (2016). “Distributional national accounts: Methods and estimates for the United States”. NBER Working Paper 22945. Cambridge, MA, USA: National Bureau of Economic Research. doi: 10.3386/w22945.

Romp W and De Haan J (2007). “Public capital and economic growth: A critical survey”. Perspektiven der Wirtschaftspolitik, 8(S1): 6–52. doi: 10.1111/j.1468-2516.2007.00242.x.

Ruggles S, Genadek K, Goeken R, et al. (2015). Integrated Public Use Microdata Series: Version 6.0 [dataset]. Minneapolis, MN, USA: University of Minnesota.

Salamanca OJ (2014). “Road 443: Cementing Dispossession, Normalizing Segregation and Disrupting Everyday Life in Palestine”. In: Graham S and C McFarlane (eds.). Infrastructural Lives: Urban Infrastructure in Context. Routledge.

Stern N (1991). “The determinants of growth”. The Economic Journal, 101(404): 122–133. doi: 10.2307/2233847.

Stiglitz JE (2012). “The price of inequality: How today’s divided society endangers our future”.1st ed. New York, NY, USA: WW Norton & Company.

van der Weide R and Milanovic B (2014). “Inequality is bad for growth of the poor (but not for that of the rich)”. Policy Research Working Paper Series 6963. Washington, DC, USA: World Bank.

Wolff EN and Zacharias A (2007). “The distributional consequences of government spending and taxation in the US, 1989 and 2000”. The Review of Income and Wealth, 53(4): 692–715. doi: 10.1111/j.1475-4991.2007.00251.x.




DOI: https://doi.org/10.24294/jipd.v2i2.858

Refbacks

  • There are currently no refbacks.


Copyright (c) 2018 Emma Hooper, Sanjay Peters, Patrick Pintus

Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.

This site is licensed under a Creative Commons Attribution 4.0 International License.