Saturday, March 26, 2011

The Stimulus May Have Failed To Boost Infrastructure Spending

See Why the Stimulus Failed to Boost Infrastructure in the US: A Comparison With China by John Taylor. Excerpt:

"The data are now clear. Despite its large size, the 2009 U.S. stimulus package failed to increase government infrastructure spending or other government purchases as its promoters had claimed it would. The large federal stimulus grants sent to state and local governments for infrastructure spending were mainly used to reduce borrowing and thus did not result in an increase in purchases. Here is a summary of my research with John Cogan. The explanation is that local governments in effect acted as many American households did: when they received the stimulus money, they saved it rather than purchased goods and services. This is what permanent income theory would predict. It is also what previous empirical studies of the 1970s stimulus packages found."

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