CHICAGO Nov 26 Public spending on roadwork
boosts economic activity in both the short and medium term,
giving a bigger bang for the buck than many other forms of
fiscal stimulus, an analysis published on Monday by the San
Francisco Federal Reserve Bank showed.
For each dollar of federal highway grants received by a
state, state economic output rises by at least two dollars,
according to the study published in the regional Fed bank's
latest Economic Letter.
Most fiscal stimulus delivers an extra 50 cents to $1.50 of
output for each dollar of government spending, the researchers
The study comes against a backdrop of fiscal tightening, not
stimulus, as U.S. lawmakers debate how best to trim the
ballooning federal debt without hurting a tentative economic
Absent a deal in Congress, a slew of spending cuts and tax
increases are set to go into effect starting on Jan. 1 that
would slash the budget deficit nearly in half but would also
likely trigger a new recession.
In their paper, San Francisco Fed research advisor Sylvain
Leduc and senior economist Daniel Wilson made no direct
reference to the current debate on the so-called fiscal cliff.
But they did argue that surprise increases in federal
spending on roads - like the $27.5 billion increase in federal
highway grants to states made in 2009 - can have positive
effects on gross state product.
"Highway spending can be effective during periods of very
high economic slack, particularly when spending is structured to
reduce the usual implementation lags," they wrote.