Highway Capital Expenditures and Induced Vehicle Travel
14 Pages Posted: 19 May 2012 Last revised: 21 Aug 2012
Date Written: May 18, 2012
Abstract
We investigate the effects of public capital investment on the demand for travel. We define capital stock as a productive flow that accounts for the physical deterioration of infrastructure over time. We present a framework where additions to capital stock only cover a portion of the long-run equilibrium level, and where policy decisions are dictated by expectations of economic and travel growth. To the extent that these investments increase productivity, they generate induced travel. Using a panel dataset at the state level for the period 1982-2005, we find that the elasticity of travel demand with respect to changes in state highway capital stock is equal to 0.041in the short run, while the long-run is 0.237. Our results show that changes in capital expenditures in response to past levels of traffic are characterized by a three-year lag, suggesting that the investment response to changes in travel is slow to converge to the desired long-run levels.
Keywords: highway capital, public capital, capital accumulation, vehicle miles of travel, vmt, induced travel, induced vmt
JEL Classification: H41, R4, C2, C3
Suggested Citation: Suggested Citation