On the Economic and Fiscal Effects of Investments in Road Infrastructures in Portugal

Abstract

The objective of this paper is to investigate the economic and fiscal impact of road infrastructure investment in Portugal, focusing on the effects for each administrative region of both local investments and investments in other regions. We estimate VAR models for the national economy as well as for each of the five regions, and using the associated impulse-response functions we find that investment in road infrastructures has been a powerful instrument to increase private investment, to create new permanent jobs and to promote long-term growth in all regions. More importantly, investment in road infrastructure, both at the aggregate level and for each one of the five regions, generates fiscal effects that largely exceed the initial investment itself. Accordingly, there is no trade-off in the long-term between the potentially positive economic effects and the potentially negative budgetary effects of such investments, i.e., both economic and budgetary effects are positive. As a corollary, policies that would reduce current road investment as a response to the current budgetary concerns will result in lower long-term growth as well as worse budgetary conditions in the future.