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Vol. 75, No. 6
Posted 1993-11-01

Is an Infrastructure Crisis Lowering the Nation's Productivity?

by John A. Tatom

Has the United States allowed its public infrastructure to decline? More importantly, has such a decline lowered the nation’s productivity? John A. Tatom describes and evaluates the currently popular view that the answer to these questions is yes. Supporters of this view advocate sharp increases in federal government spending on infrastructure, with the expectation of a boost in the productivity of the nation’s business sector. Tatom also reviews the criticisms of this view, especially the fact that, when flaws in previous statistical studies are addressed, the perceived, positive effects of the public capital stock on business productivity vanish. Tatom summarizes the reasons for a decline in the growth of some components of the nation’s infrastructure in the 1970s and early 1980s, as well as for the reversal of these trends since 1984. He shows that a slowdown of public capital formation also occurred in Europe and Japan, presumably for many of the same reasons. According to Tatom, the federal capital stock per capita has been quite steady for more than 40 years, and there has been no connection between swings in federal aid to state and local governments and the latter’s capital formation. Thus, dramatic boosts in federal spending in recent years have not raised overall public capital formation, but this has not been an obstacle to advances in productivity.




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