Use or Abuse of Highway Tax Revenues? An Economic Analysis of Highway Spending

Abstract

This article develops a theoretical model and employs recent state-level data on highway finance to assess the consequences of using highway levies for non-highway purposes. It examines whether states that divert some of their highway-related levies to fund general government services spend systematically less on highway services than jurisdictions that do not; the 'displacement effect' of revenue diversion. The results show that states that use highway related levies to fund general government services do systematically spend less on highways than states that do not.