Road Infrastructure, Economic Productivity, and the Need for Highway Finance Reform

Abstract

After years of debate, there is still much disagreement about the economic impacts of highway infrastructure. This article suggests that recent empirical evidence can help reconcile the divergent views on the role of highways in the economy. The resolution illuminates two ideas that should be more prominent in transportation policy. First, highways are associated with both local economic gains (often near a project) and economic losses (often distant from a project). In a system of centralized highway finance, this creates the possibility of a geographic mismatch between the areas that pay for highway projects and the areas that benefit from those projects. Second, efficiently using the available highway capital is potentially as effective as building additional highway stock in enhancing the local economic impacts of highways. Both ideas suggest the need for more decentralized, project-specific highway finance that includes a role for efficient pricing. The policy implications of a more decentralized highway finance system are discussed in the closing section of the article.