THE ECONOMIC EFFECTS OF FEDERAL SPENDING ON INFRASTRUCTURE AND OTHER INVESTMENTS

This paper focuses on categories of federal investment that are clearly related to economic growth: infrastructure, education and training, and research and development. Conversely, the government undertakes investments (both within and outside those three categories) partly or wholly to serve other social goals, and they should be judged in that respect. Protecting endangered species and exploring the origins of the universe are two examples of federal investments pursued for noneconomic reasons. Some of the studies examined here consider the effect of federal investment not only on measured output (GDP), but also on the broader concept of "economic welfare". The latter measure includes dollar values for unpriced goods and services based on estimates of what individuals would be willing to pay for them. the two concepts lead to similar evaluations of investment projects and programs in most cases, but not all. For example, a highway project could improve welfare (or be "economically efficient") without adding to GDP if a significant share of its benefit is in the form of increased leisure time for commuters; conversely, it could increase GDP but nonetheless reduce welfare if it leads to a significant increase in air pollution.