Academic journal article Contemporary Economic Policy

Does Fiscal Decentralization Affect Infrastructure Quality? an Examination of U.S. States

Academic journal article Contemporary Economic Policy

Does Fiscal Decentralization Affect Infrastructure Quality? an Examination of U.S. States

Article excerpt

I. INTRODUCTION

A modern transportation network is vital to the U.S. economy. However, the roads and bridges that make up the U.S. highway infrastructure are in disrepair as a result of insufficient maintenance, which create inefficiencies such as increases in travel times, damages to vehicles, and increases in accidents. For example, one in four bridges require significant repair or cannot handle today's traffic and 65% of America's major roads are rated in less than good condition. Over time, infrastructure deteriorates and if this infrastructure is not updated it can lead to disasters. The fatal collapse of the I-35W Mississippi River Bridge in Minneapolis brought needed attention to the question of the state of repair of America's bridges.

In March 2014, New Jersey Transportation Commissioner closed yet another bridge for safety concerns, which amounts to 500 bridges around the state that are either structurally deficient or functionally obsolete as of January 2015 (Higgs 2015). According to Rose (2015), the scene of emergency road repairs is becoming all too familiar across the country. The poor infrastructure quality of bridges and roads is leading South Carolina, Tennessee, and Utah to propose However, the means to fund the infrastructure of bridges and roads and their maintenance is a point of debate. According to Senate Finance Committee testimony, "Many advocacy groups support increases in federal transportation spending, but a better policy approach would be to ensure that the nation's investments are financed, constructed, and managed more efficiently. My testimony discusses why we should decentralize transportation infrastructure to the largest extent possible" (Edwards 2014).

The issue at hand is that policy makers have to decide between investments in improving existing transport infrastructure versus building new highways, and which level of government is responsible for their maintenance. The literature on highway investment focuses on spending, allocations, and crowding out, but economists have given little attention to the political decision-making process on infrastructure spending. Only Crain and Oakley (1995) analyze the political process from which public capital outlay decisions surface. Implicit in their empirical analyses is the assumption that public investments are directed with equal competency over time and across geography by the relevant political actors. Specifically, in their article, they investigate the role of political institutions and the process underlying the decisions for infrastructure spending.

In this paper, we e[x.sub.i]end the work of Crain and Oakley (1995) by examining the role of political institutions and the political decision-making process on the quality of infrastructure by focusing on the role of fiscal decentralization. From the point of view of economic efficiency, decisionmaking authority is best placed with those who have the incentive to weigh all of the costs and benefits of the decisions. Whether the federal government or state/local governments make more efficient decisions about highway projects depends on who receives the benefits and costs of those decisions. Many of the benefits of highway projects are concentrated locally rather than accruing nationally. Thus, local officials generally have better information about what projects make the most sense for their areas.

Oates (1972) and Brennan and Buchanan (1980) argue that greater decentralization can improve the provision of local public and semipublic goods and services. This notion would especially seem to hold for those goods and services that target unique local or regional demands. There are several reasons for this view, but all center around the idea of bringing decision makers closer to those affected by their decisions. Reasons include local government officials having greater knowledge and understanding of their citizens and their preferences, which can apply to the provision or improvement of bridges and roadways. …

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