Is Public Construction Countercyclical?

Abstract

Economic stabilization by means of public construction has long attracted the attention of scholars and politicians alike. The proponents of such a policy see public construction as one instrument in a package of fiscal compensatory tools. A reserve of public works projects can be taken off the shelf and activated to stimulate a sagging economy. Similarly, projects can be postponed during boom periods. During the New Deal two public works agencies were established to accelerate business recovery from the Depression: The Public Works Administration (PWA) and the Works Progress Administration (WPA). President Eisenhower set up a special unit in his executive office to accumulate a shelf of public works that may be undertaken at all three levels of government. More recently, the Humphrey-Hawkins Act of 1978 included the countercyclical use of public works in its prescriptions for economic policy.1 At this writing, a major public works program to combat the recession has become a hotly debated issue. Public construction supported by federal grants has also been utilized to bolster employment in declining and distressed areas. Public works projects, because of their explicit spatial location, enjoy the advantage of targeting in those areas where employment generation seems necessary. Programs of the Area Redevelopment and Economic Development Administrations sought to strengthen the economies of selected regions through building local infrastructure and other projects that would employ the jobless and at the same time increase the areas' attractiveness for new business activity.