Infrastructure, Wages and Land Prices

The importance of infrastructure investment and its contribution to welfare has been the subject of considerable recent debate in both policy and academic circles. In this study, I propose a somewhat different treatment of infrastructure than has previously been adopted. Specifically, I model infrastructure investment as a local public good, and discuss how to measure its costs and benefits in this context. Section 6.2 of this study provides a synthesis of two models which have traditionally been used to examine the effects of local attributes, including fiscal attributes and infrastructure, on local economies. Recent research on the impact of fiscal policy has roughly been concentrated in two areas: studies which calculate “willingness to pay” for local attributes by estimating implicit price models, and studies which attempt to calculate the direct effect of infrastructure stocks and other public policy instruments on aggregate variables like employment and output. Section 6.3 shows that these two approaches should not be considered exclusively of each other and provides a simple general equilibrium framework which incorporates elements of each.