Should Transportation Spending be included in a Stimulus Program? A Review of the Literature

The views in this paper are solely the responsibility of the authors and should not be interpreted as reflecting the views of the Federal Reserve Bank of San Francisco or the Board of Governors of the Federal Reserve System. Transportation spending often plays a prominent role in government efforts to stimulate the economy during downturns. Yet, despite the frequent use of transportation spending as a form of fiscal stimulus, there is little known about its short-or medium-run effectiveness. Does it translate quickly into higher employment and economic activity or does it impact the economy only slowly over time? This paper reviews the empirical findings in the literature for the United States and other developed economies and compares the effects of transportation spending to those of other types of government spending.