Evaluating the Impacts of Infrastructural Investments in the US on State and Local Tax Revenues

Abstract

With an investment gap of $3.7 trillion, according to the American Society for Civil Engineers (ASCE), US infrastructure is literally begging for help. This situation is so extensive across the US, the richest economy in the world, that the reputable ASCE has assigned–based upon evidence and trends–an unflattering letter grade of C for the nation’s infrastructure. Multiform and vast challenges are omnipresent throughout the entire spectrum of infrastructure nationwide, ranging from roads, bridges, dams, electric grids, railroads to airports, ports, drinking water delivery systems, transit, and broadband access networks, among others. This paper attempts to explore avenues of solutions by looking into the impacts of infrastructural investments on state and local revenues. Using the most recent annual time series, spanning the 2009-2024 period, within a vector auto-regression (VAR) framework, the study uncovers that infrastructural investments are strongly revenue-stimulative in the long run. This is an incentive for state and local governments to reassess and reorient policies toward prioritizing such investments. Doing so will durably and effectively address two woes–namely, disintegrating infrastructures and persistent revenue shortfalls–in one economic policy stroke.