Infrastructure Maintenance Spending Can Reduce Inequality, Georgia State Economists Find
ATLANTA—Public infrastructure spending on maintenance projects has a greater impact on economic growth and equitable wealth distribution than spending on new investments, according to Georgia State University research.
In “Public Infrastructure Maintenance and the Distribution of Wealth,” (Economic Inquiry, 2017), economists John Gibson and Felix Rioja of the Andrew Young School of Policy Studies examined the impact of infrastructure maintenance spending on economic output and wealth distribution. For their model they used Mexico, an emerging market where the level of infrastructure is average for Latin American countries while its income per capita ranks among the top third in that region.
“Poor infrastructure networks—whether roads, railways, airports, water systems or power utilities—are rated globally among the greatest barriers to doing business,” said Gibson, an assistant professor of economics. “Insufficient spending can lead to deterioration and a reduction in services, which will increase both transportation and production costs.”
Several prior studies have shown public infrastructure investment positively affects growth. Rioja’s earlier studies also found that spending more on maintenance rather than new infrastructure can have a larger positive impact on economic output. Yet no earlier study had analyzed how various policies may influence the distribution of wealth and degree of inequality present in the economy.
“Governments often neglect maintenance in favor of building new infrastructure,” said Gibson. “Our first key finding shows that spending more on maintenance rather than on new investment can increase aggregate Gross Domestic Product and foster the more equitable distribution of wealth. Poorer households that experience an increase in infrastructure services increase their savings at a comparatively higher rate than do richer households.”
They also found that spending more on maintenance rather than new investment yielded the highest improvements to overall output, income and wealth.
“Policymakers need to pay much more attention to maintenance within their spending priorities,” the economists conclude.
Department of Economics
Dr. Gibson’s primary areas of study are macroeconomics, financial economics, monetary economics, and computational methods. His current research is focused on the study of endogenous frictions and their effect on the performance of the aggregate economy. His recent work has investigated the important role played by financial frictions in accounting for key business cycle facts.
Associate Professor and Director of the Masters Program
Department of Economics
Felix Rioja specializes in international macroeconomics, economic growth, and financial economics. He has written articles on the effects of public infrastructure, education, and pensions on economic growth and welfare. He has also written on the effects of the financial system on growth, poverty reduction and inequality.