Abstract
We analyze cost overruns in a large sample of public infrastructural investment projects in Portugal. The average cost deviation relative to the budgeted costs amounts to 24%. The large projects even have a higher cost deviation and a higher probability of cost overruns, which suggests that the public administration may not have sufficient expertise to forecast required investments and handle these types of projects. Cost overruns are more likely in election years, reflecting that politicians seem eager to speed up or conclude infrastructural investments, and thus, they inaugurate a new service to harvest political goodwill with the population. We document that cost deviations are reduced over time; however, this reduction does not appear to be the result of the new procurement laws but seem rather the result from the benefits of learning and increased fiscal constraints. A reduction in corruption positively correlates with cost deviations and the probability of cost overruns.
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