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

40 Pages Posted: 14 Apr 2017

See all articles by Emma Hooper

Emma Hooper

Banque de France

Sanjay Peters

Columbia University

Patrick Pintus

Aix-Marseille University and CNRS

Date Written: March 2017

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

JEL Classification: C23, D31, H72, I24, O51

Suggested Citation

Hooper, Emma and Peters, Sanjay and Pintus, Patrick, To What Extent Can Long-Term Investment in Infrastructure Reduce Inequality? (March 2017). Banque de France Working Paper No. 624, Available at SSRN: https://ssrn.com/abstract=2952365 or http://dx.doi.org/10.2139/ssrn.2952365

Emma Hooper

Banque de France ( email )

Paris
France

Sanjay Peters

Columbia University ( email )

3022 Broadway
New York, NY 10027
United States

Patrick Pintus (Contact Author)

Aix-Marseille University and CNRS ( email )

Ilot Bernard Dubois
5-9 Boulevard Maurice Bourdet
Marseille, 13001
France
0609397281 (Phone)

HOME PAGE: http://https://sites.google.com/site/patrickpintus/

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