Investing in Ontario's Infrastructure for Economic Growth and Prosperity

Abstract

This paper documents the potential employment and other value-added benefits of infrastructure investments in Ontario. In particular, it details the impact of infrastructure investment as a counter-cyclical fiscal policy tool. A review of the recent literature reveals that infrastructure investment serves both as a tool for job creation and as a stimulus for the economy as a whole. During recessionary times infrastructure investments have been able to boost the economy and have served as a primary job creation tool, especially when the private sector investments have dried up. At the same time, these investments have produced the infrastructure necessary to support future economic growth. Published research also revealed that the input-output models have been the preferred tool to capture the relationship between infrastructure investments and their impact on economy. Thus, the primary aim of this paper is to illustrate the impact of infrastructure investment on job creation, GDP, and tax revenue in the Province of Ontario using an input-output model. The paper documents the results of a simulation exercise, using an input-output model of the Ontario economy based on a 2008 industry structure that estimated the economic impact of a $12-billion public sector (government) investment in non-residential building and engineering construction in Ontario. This infrastructure investment is estimated to have a $38.4-billion impact on the province’s economy. The $12-billion investment would create an estimated 203,000 jobs (person-years of employment) in the provincial economy, generate an estimated $10 billion in employment income and increase the provincial GDP by an estimated $18.5 billion. This investment would also generate an estimated $668.7 million in corporate taxes and $161.2 in personal income taxes. When the impacts are normalized to a $1-billion stimulus, the IO simulations revealed that during the 2008 recessionary period in Ontario, every billion dollar invested in non-residential building and engineering construction would create almost 17,000 new jobs. Of those, the model estimated 3,050 jobs in direct impact, 2,850 jobs in indirect impact, and 11,000 jobs in induced impact. These benefits are in addition to the longer term direct benefits of infrastructure investments that would result from the use of new or rehabilitated infrastructure. For instance, a $12-billion investment in transportation infrastructure could result in a significant improvement in accessibility and mobility in the region, and related improvements in labour and business productivity. The above-mentioned monetized impacts of infrastructure investments, however, are above and beyond the positive impacts on accessibility and productivity. Finally, the paper reviews transportation infrastructure plans for the Greater Toronto and Hamilton Area (GTHA) and discusses the investment tools identified recently by various agencies. The paper concludes that public-private partnerships for infrastructure development will promote greater use of private capital in the construction and development of public infrastructure. User fees and those taxes that are likely to modify consumer behaviour are recommended as the preferred tools for revenue generation to support the construction of new infrastructure. We recommend that sufficient funds should be made available for infrastructure development and renewal in Canada to maintain the competitiveness of Canadian businesses. The opportunity cost of not spending now reduces the productive capacity of the economy in the future, especially when public capital investments in infrastructure have the potential to generate immediate and substantial productivity gains.