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Economic Analysis of Infrastructure Investment

Economic Analysis of Infrastructure Investment

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Published by: masslive on Oct 11, 2010
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 An Economic Analysis ofInfrastructure Investment
The Department of the Treasury  with the Council of Economic Advisers
October 11, 2010
 
 
A
N
E
CONOMIC
A
NALYSIS OF
I
NFRASTRUCTURE
I
NVESTMENT
 
A
 
EPORT
P
REPARED BY THE
D
EPARTMENT OF THE
T
REASURYWITH THE
C
OUNCIL OF
E
CONOMIC
A
DVISERS
 
O
CTOBER 
11,
 
2010
 
1
Executive Summary
On Labor Day, President Obama announced a bold plan to renew an
d expand America’s
infrastructure. The plan includes a $50 billion up-front investment connected to a six-yearreauthorization of the surface transportation program and the creation of a National InfrastructureBank to leverage private capital and select projects of regional and national significance. TheDepartment of the Treasury, with the Council of Economic Advisers, has conducted an analysisof the economic effects of transportation infrastructure investment. Our analysis found four keyreasons why now is an optimal time to increase our investment in transportation infrastructure:
 
Well designed infrastructure investments have long term economic benefits;
 
The middle class will benefit disproportionately from this investment;
 
There is currently a high level of underutilized resources that can be used to improve andexpand our infrastructure; and
 
There is strong demand by the public and businesses for additional transportationinfrastructure investments.
Return on Investment
 
Many studies have found evidence of large private sector productivity gains from publicinfrastructure investments, in many cases with higher returns than private capitalinvestment. Research has shown that well designed infrastructure investments can raiseeconomic growth, productivity, and land values, while also providing significant positivespillovers to areas such as economic development, energy efficiency, public health andmanufacturing.
 
Not all infrastructure projects are worth the investment. Investing rationally ininfrastructure is critically important, as is providing opportunities for the private sector toinvest in public infrastructure. There is currently very little direct private investment in
our nation’s highway and transit systems due to the current method o
f fundinginfrastructure, which lacks effective mechanisms to attract and repay direct privateinvestment in specific infrastructure projects. The establishment of a NationalInfrastructure Bank would create the conditions for greater private sector co-investmentin infrastructure projects. A National Infrastructure Bank would also perform a rigorousanalysis that would result in support for projects that yield the greatest returns to societyand are most likely to deliver long-run economic benefits that justify the up-frontinvestments.

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