Reciprocal State and Local Airport Spending Spillovers and Symmetric Responses to Cuts and Increases in Federal Airport Grants

Abstract

How states and localities react to federal airport grant cuts is a question of increasing importance, especially in light of recent congressional funding reauthorization debates. This study finds that states and localities behave in the way public finance theory predicts. The magnitude of an airport spending change is the same (but in opposite directions) for a cut and an increase in airport grants. Thus, the flypaper effect operates in both directions. Spillovers arising from airport spending are also considered. With the hub and spoke structure of the U.S. air transportation system, a spending increase on airports experiencing major time delays confers spillover benefits on individuals in other states in the form of travel time savings from decreased congestion. These spillovers are reciprocal. There is significant evidence of such interdependencies, and an individual state raises airport spending by between 50 and 60 cents when other states increase airport spending by 1 dollar.

Keywords: airports, spatial spillovers, flypaper effect

JEL Classification: R4, H7