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PUBLIC INFRASTRUCTURE MAINTENANCE AND THE DISTRIBUTION OF WEALTH
Author(s) -
Gibson John,
Rioja Felix
Publication year - 2017
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/ecin.12371
Subject(s) - public infrastructure , depreciation (economics) , economics , investment (military) , public capital , distribution (mathematics) , quality (philosophy) , finance , business , critical infrastructure , capital (architecture) , public economics , microeconomics , public investment , production (economics) , economic growth , human capital , capital formation , financial capital , computer science , philosophy , mathematics , computer security , law , mathematical analysis , epistemology , political science , politics , history , archaeology
When considering how to allocate scarce resources for the development of public infrastructure, many countries have a tendency to neglect maintenance in favor of new infrastructure investment projects. We examine the role of maintenance expenditures on output and on the distribution of wealth in a heterogeneous agents model. In our model, maintenance affects the quality of existing infrastructure and thus the flow of services derived from it. Furthermore, maintenance expenditures also affect the depreciation rates of both public infrastructure and private capital. We calibrate our model to Mexico and consider several policies that increase the flow of resources to infrastructure and find that a policy that allocates all additional resources to new investment is dominated by policies that allocate at least some of the additional resources to maintenance. Specifically, focusing all additional resources on maintenance is shown to generate the largest reduction in inequality, while a more balanced policy that increases both investment and maintenance maximizes output growth. ( JEL E00, E62, H54)