Infrastructure and the Economy

Changes from August 5, 2021 to November 29, 2021

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Infrastructure and the Economy
~~August 5~~November 29, 2021 , 2021
Infrastructure investment has received renewed interest of late, with both President Biden and Infrastructure investment has received renewed interest of late, with both President Biden and
some Members of Congress discussing the benefits and costs of such spending and what some Members of Congress discussing the benefits and costs of such spending and what
Lida R. Weinstock
investments should be considered part of infrastructure. investments should be considered part of infrastructure. Infrastructure investment or or
Analyst in Macroeconomic Analyst in Macroeconomic
infrastructure reform can describe a wide array of activities in policy discussions, depending on can describe a wide array of activities in policy discussions, depending on
Policy Policy
the context. In general, infrastructure has historically referred to longer-lived, capital-intensive the context. In general, infrastructure has historically referred to longer-lived, capital-intensive

systems and facilities, such as roads, bridges, and water treatment facilities. Partly owing to the systems and facilities, such as roads, bridges, and water treatment facilities. Partly owing to the
amorphous definition of amorphous definition of infrastructure, there is no set method for measuring infrastructure , there is no set method for measuring infrastructure

investment. For public infrastructure, economists often use a measure called government investment. For public infrastructure, economists often use a measure called government
investment. investment.
Infrastructure is a critical factor in the modern economy, enabling private businesses and individuals to produce goods and Infrastructure is a critical factor in the modern economy, enabling private businesses and individuals to produce goods and
services more efficiently. With respect to overall economic output, increased public infrastructure spending generally leads to services more efficiently. With respect to overall economic output, increased public infrastructure spending generally leads to
higher economic output in the short term by stimulating demand and in the long term by increasing overall productivity. The higher economic output in the short term by stimulating demand and in the long term by increasing overall productivity. The
short-term impact on economic output largely depends on the type of financing (short-term impact on economic output largely depends on the type of financing (~~whet her~~whether deficit-financed or deficit-neutral deficit-financed or deficit-neutral
investment) and the state of the economy (whether in a recession or expansion). The longinvestment) and the state of the economy (whether in a recession or expansion). The long -term impact on economic output is -term impact on economic output is
also affected by the method of financing, due to the potential for “crowding out” of private investment when investments are also affected by the method of financing, due to the potential for “crowding out” of private investment when investments are
deficit financed. Economists also expect the type of infrastructure—whether in roads, railways, airports, utilities, or public deficit financed. Economists also expect the type of infrastructure—whether in roads, railways, airports, utilities, or public
buildings—to affect the impact on economic output. buildings—to affect the impact on economic output.
Nondefense gross government investment (federal, state, and local) in the United States has largely been in Nondefense gross government investment (federal, state, and local) in the United States has largely been in ~~d ecline~~decline since the since the
1960s, falling from above 4% of GDP to about 2.7% in 2019.1960s, falling from above 4% of GDP to about 2.7% in 2019. Direct federal investment, or spending that occurs at the federal Direct federal investment, or spending that occurs at the federal
level rather than transfers to state and local governments, has gradually declined over the past several decades, falling from level rather than transfers to state and local governments, has gradually declined over the past several decades, falling from
about 1.4% of GDP in 1966 to about 0.7% of GDP in 2019. Transfers from the federal government to state and local about 1.4% of GDP in 1966 to about 0.7% of GDP in 2019. Transfers from the federal government to state and local
government for capital investments have exceeded direct federal government for capital investments have exceeded direct federal ~~spend ing~~spending since the mid-1950s. State and local investment since the mid-1950s. State and local investment
has followed a similar pattern over time as investment at the federal level but generally made up a higher share of GDP. State has followed a similar pattern over time as investment at the federal level but generally made up a higher share of GDP. State
and local investment peaked in 1939 at 3.64% of GDP before shrinking dramatically during and shortly after World War II, and local investment peaked in 1939 at 3.64% of GDP before shrinking dramatically during and shortly after World War II,
then increasing back to about 3% of GDP in the late 1960s. State and local investment has trended downward somewhat then increasing back to about 3% of GDP in the late 1960s. State and local investment has trended downward somewhat
since, falling to 2% of GDP by 2019. since, falling to 2% of GDP by 2019.
Changes in economic output are expected to affect employment; as such, infrastructure investments are likely to increase Changes in economic output are expected to affect employment; as such, infrastructure investments are likely to increase
short-term employment as well. Recent research suggests that increased infrastructure investment modestly reduces the short-term employment as well. Recent research suggests that increased infrastructure investment modestly reduces the
unemployment rate, though the effect can greatly vary depending on the method of financing and the state of the economy. unemployment rate, though the effect can greatly vary depending on the method of financing and the state of the economy.
Deficit-neutral investments are less likely to affect employment, whereas deficit-financed investments are expected to reduce Deficit-neutral investments are less likely to affect employment, whereas deficit-financed investments are expected to reduce
unemployment in the short term. Additionally, recent economic research suggests that during an economic expansion, with a unemployment in the short term. Additionally, recent economic research suggests that during an economic expansion, with a
relatively strong labor market, infrastructure investments are unlikely to have any sustained impact on the unemployment relatively strong labor market, infrastructure investments are unlikely to have any sustained impact on the unemployment
rate. During a recession, the same investment is likely to reduce the unemployment rate to some degree. rate. During a recession, the same investment is likely to reduce the unemployment rate to some degree.
~~The Biden Administration has put forward a proposal for increased infrastructure spending, the American Jobs Plan, which~~
~~includes certain provisions that some observers have argued would not necessarily fall under a “core infrastructure”~~
~~categorization. Others have argued certain provisions would not fall under the umbrella of infrastructure at all, leading to~~
~~significant debate surrounding the plan’s potential effect on the economy and the definition of infrastructure more broadly.~~
~~President Biden has proposed paying for the American Jobs Plan with an increase in the corporate tax rate from 21% to 28%.~~
~~According to the Administration, this would make the American Jobs Plan deficit neutral within 15 years, although most of~~
~~the spending would be done in the first 10 years. The American Jobs Plan was originally proposed at $2.25 trillion.~~
~~The Senate is currently debating an infrastructure plan that is smaller in size and would be funded differently than the~~
~~American Jobs Plan would. The Senate is considering this plan as an amendment to H.R. 3684, a transportation~~
~~reauthorization bill that passed the House on July 1, 2021.~~

On November 15, 2021, President Biden signed into law the Infrastructure Investment and Jobs Act (P.L. 117-58), which authorizes $550 billion in new infrastructure spending over the next five years. Economists generally agree that this investment will produce small but positive gains to growth in the U.S. economy over the next decade. Congressional Research Service Congressional Research Service

Infrastructure and the Economy

Introduction
Infrastructure ~~general y~~generally refers to long-lasting structures or systems that facilitate economic refers to long-lasting structures or systems that facilitate economic
activity. This simple definition, however, belies a lack of consensus over what specific structures activity. This simple definition, however, belies a lack of consensus over what specific structures
or systems should be considered infrastructure. Some things (e.g., roads, bridges, and ports) are or systems should be considered infrastructure. Some things (e.g., roads, bridges, and ports) are
broadly considered infrastructure, while others (e.g., broadly considered infrastructure, while others (e.g., ~~intel ectual~~intellectual property and government property and government
buildings, such as schools and hospitals) are more debatable. Federal, state, and local government buildings, such as schools and hospitals) are more debatable. Federal, state, and local government
plays a significant role in investments to build new and maintain existing infrastructure, although plays a significant role in investments to build new and maintain existing infrastructure, although
government investment has government investment has ~~general y~~generally decreased over the past several decades in the United decreased over the past several decades in the United
States. Recently, the Biden Administration and Congress have been in talks about potential States. Recently, the Biden Administration and Congress have been in talks about potential
infrastructure investment spending packages. infrastructure investment spending packages.
Many economists believe that under the right economic conditions, public investment in Many economists believe that under the right economic conditions, public investment in
infrastructure infrastructure ~~wil~~ will contribute to long-term growth. However, if the investment is financed through contribute to long-term growth. However, if the investment is financed through
government debt or made during an economic expansion, this could dampen or even negate the government debt or made during an economic expansion, this could dampen or even negate the
impact. This report discusses the potential benefits and drawbacks of public infrastructure impact. This report discusses the potential benefits and drawbacks of public infrastructure
investment, the state of public infrastructure investment in the economy, and potential future investment, the state of public infrastructure investment in the economy, and potential future
plans for additional public infrastructure investment. While the report focuses on public plans for additional public infrastructure investment. While the report focuses on public
infrastructure investment, we note there is a significant amount of private infrastructure infrastructure investment, we note there is a significant amount of private infrastructure
investment in this country as investment in this country as ~~wel .1~~
well.1 Definitions of Infrastructure
There is not one set definition of There is not one set definition of infrastructure, and it can be difficult to measure investment in , and it can be difficult to measure investment in
infrastructure. Government agencies and researchers use various types of data to measure infrastructure. Government agencies and researchers use various types of data to measure
infrastructure, and it can be infrastructure, and it can be ~~chal enging~~challenging to find two sources of research that are exactly to find two sources of research that are exactly
comparable. Most definitions of comparable. Most definitions of infrastructure include investment in physical structures and include investment in physical structures and
equipment that are used in the production process. Infrastructure investment is equipment that are used in the production process. Infrastructure investment is ~~general y~~generally meant to meant to
spur productivity growth—one of the main determinants of long-term economic growth—by spur productivity growth—one of the main determinants of long-term economic growth—by
making the production process more efficient. Not making the production process more efficient. Not al all infrastructure projects infrastructure projects ~~wil~~ will end up end up
increasing productivity growth, and those that do increasing productivity growth, and those that do ~~wil~~ will differ in impact. This section addresses the differ in impact. This section addresses the
difficulties in measuring infrastructure investment, the various measures that economists and difficulties in measuring infrastructure investment, the various measures that economists and
researchers use, and the different types of infrastructure (and how this can play into questions of researchers use, and the different types of infrastructure (and how this can play into questions of
measurement). measurement).
Types of Infrastructure
Infrastructure tends to be organized into specific buckets. One of the key distinctions many Infrastructure tends to be organized into specific buckets. One of the key distinctions many
economists and policymakers make is between so-economists and policymakers make is between so-~~cal ed~~called core infrastructure and and al all other other
infrastructure. infrastructure. Core infrastructure ~~general y~~generally refers to physical structures and equipment that have refers to physical structures and equipment that have
the potential to directly improve productivity, as they are closely associated with the cost of the potential to directly improve productivity, as they are closely associated with the cost of
producing goods and services. Examples include roads, railways, airports, and utilities, among producing goods and services. Examples include roads, railways, airports, and utilities, among

1 Federal, state, and local governments often share the cost of public infrastructure investments, with the majority of 1 Federal, state, and local governments often share the cost of public infrastructure investments, with the majority of
direct spendingdirect spending coming from state and local governments. coming from state and local governments. ~~T he~~The federal government contributes to infrastructure federal government contributes to infrastructure
investments in the form of both direct spending and grants to state and local governments. For more information, see investments in the form of both direct spending and grants to state and local governments. For more information, see
CRSCRS In FocusIn Focus IF10592, IF10592, Infrastructure ~~Investm ent~~Investment and the Federal ~~Governm ent~~Government, by William J. Mallett, by William J. Mallett . .
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others.2 Some research suggests that core infrastructure tends to have a larger impact on private- others.2 Some research suggests that core infrastructure tends to have a larger impact on private-
sector economic output than sector economic output than al all types of infrastructure taken together.3types of infrastructure taken together.3
Another type of categorization of infrastructure has to do with who funds it and who owns it. Another type of categorization of infrastructure has to do with who funds it and who owns it.
Infrastructure investment can be made by the government, the private sector, or a combination of Infrastructure investment can be made by the government, the private sector, or a combination of
the two. Infrastructure is often categorized as public, private, or a publicthe two. Infrastructure is often categorized as public, private, or a public -private partnership. -private partnership.
While it may seem at first that infrastructure investment by the government would be on public While it may seem at first that infrastructure investment by the government would be on public
infrastructure projects, and likewise for private and public-private, this is not necessarily the case. infrastructure projects, and likewise for private and public-private, this is not necessarily the case.
Public infrastructure refers to infrastructure that is publicly owned, and refers to infrastructure that is publicly owned, and private infrastructure
refers to infrastructure that is privately owned. However, the government can refers to infrastructure that is privately owned. However, the government can ~~stil~~ still invest in invest in
privately owned infrastructure just as the private sector can invest in public infrastructure.4privately owned infrastructure just as the private sector can invest in public infrastructure.4
Measurement
Given that there is no official definition of Given that there is no official definition of infrastructure, government agencies do not , government agencies do not ~~actual y~~actually
publish data on “infrastructure investment.” Instead, various agencies publish data on different publish data on “infrastructure investment.” Instead, various agencies publish data on different
types of government and private investment. While there is a significant amount of private-sector types of government and private investment. While there is a significant amount of private-sector
investment in infrastructure, this type of investment can be more difficult to proxy using publicly investment in infrastructure, this type of investment can be more difficult to proxy using publicly
~~available~~ available and centralized data; therefore, this report focuses on investment made by the and centralized data; therefore, this report focuses on investment made by the
government. The majority of the analysis in this report uses government. The majority of the analysis in this report uses gross government investment, as , as
measured by the Bureau of Economic Analysis (BEA), as a proxy for public infrastructure measured by the Bureau of Economic Analysis (BEA), as a proxy for public infrastructure
investment. Some analysis also uses investment. Some analysis also uses federal investment, as measured by the Congressional , as measured by the Congressional
Budget Office (CBO). The following subsections discuss both methodologies in detail.5 For other Budget Office (CBO). The following subsections discuss both methodologies in detail.5 For other
research mentioned in this report, a discussion of methodology is included at that time. research mentioned in this report, a discussion of methodology is included at that time.
Gross Government Investment (BEA)
Due to the ambiguous definition of Due to the ambiguous definition of infrastructure, tracking government spending on , tracking government spending on
infrastructure investments can be difficult. One of the more comprehensive sources of data that infrastructure investments can be difficult. One of the more comprehensive sources of data that
track government spending in various categories is BEA.6 BEAtrack government spending in various categories is BEA.6 BEA divides government spending into divides government spending into
consumption expenditures and gross investments.7 Consumption expenditures consist of spending consumption expenditures and gross investments.7 Consumption expenditures consist of spending
by the government to produce and provide goods and services to the public, such as paying by the government to produce and provide goods and services to the public, such as paying
census workers to survey households, and would census workers to survey households, and would ~~general y~~generally not include infrastructure. By contrast, not include infrastructure. By contrast,
government gross investment consists of government spending on fixed assets, or capital, used to government gross investment consists of government spending on fixed assets, or capital, used to
benefit the public for more than one year, such as roads, bridges, computers, and government benefit the public for more than one year, such as roads, bridges, computers, and government
buildings.8 Investment is then further divided into three categories: (1) structures, which include buildings.8 Investment is then further divided into three categories: (1) structures, which include

2 For more information about core infrastructure and other definitions, see CRS2 For more information about core infrastructure and other definitions, see CRS In Focus IF10592, In Focus IF10592, Infrastructure
~~Investm ent~~Investment and the Federal ~~Governm ent~~Government, by William J. Mallett, by William J. Mallett . .
3 Pedro Bom and Jenny Ligthart, “What Have We Learned from 3 Pedro Bom and Jenny Ligthart, “What Have We Learned from ~~T hree~~Three Decades of Research on the Productivity of Decades of Research on the Productivity of
PublicPublic Capital?,” Capital?,” Journal of Economic Surveys, vol. 28, no. 5 (December 2015), pp. 889-916. , vol. 28, no. 5 (December 2015), pp. 889-916.
4 U.S.4 U.S. Congressional BudgetCongressional Budget Office (CBO), Office (CBO), Budgeting for Federal Investment, April 2021, https://www.cbo.gov/, April 2021, https://www.cbo.gov/
publication/57142#publication/57142#~~_idT extAnchor006~~_idTextAnchor006. .
5 For more information on the definitions of 5 For more information on the definitions of infrastructure investment by various agencies, see by various agencies, see CBO, CBO, Budgeting for
Federal ~~Investm ent~~Investment, Chapter 1, https://www.cbo.gov/publication/57142#, Chapter 1, https://www.cbo.gov/publication/57142#~~_idT extAnchor006.~~
_idTextAnchor006. 6 Data on infrastructure investment at the federal level are also available6 Data on infrastructure investment at the federal level are also available from the Historical from the Historical ~~T ables~~Tables produced by produced by the the
Office of Management and BudgetOffice of Management and Budget ~~(OMB). T hese sources~~ (OMB). These sources do not include data on state and local infrastructure do not include data on state and local infrastructure
spending. spending.
7 Because 7 Because BEA measuresBEA measures the output of goods and services, it does not includethe output of goods and services, it does not include government transfers or subsidiesgovernment transfers or subsidies in the in the
standard measure of government spending, unlike the federal budgetstandard measure of government spending, unlike the federal budget definition of definition of spending. .
8 BEA, 8 BEA, Concepts and Methods of the U.S. National Income and Product Accounts, November 2017, pp. 9-1 to 9-26, , November 2017, pp. 9-1 to 9-26,
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many of the classic examples of core infrastructure (e.g., water systems, highways, bridges); (2) many of the classic examples of core infrastructure (e.g., water systems, highways, bridges); (2)
equipment (e.g., computers, military hardware); and (3) equipment (e.g., computers, military hardware); and (3) ~~intel ectual~~intellectual property products (e.g., property products (e.g.,
software, research and development). software, research and development).
Depending on how Depending on how infrastructure is defined, BEA is defined, BEA government investment data can act as a proxy government investment data can act as a proxy
for infrastructure investment, although perhaps an imperfect one.9 Furthermore, it is common to for infrastructure investment, although perhaps an imperfect one.9 Furthermore, it is common to
limit analysis of infrastructure investments to nondefense investments, as national defense limit analysis of infrastructure investments to nondefense investments, as national defense
investments are investments are ~~general y~~generally not available not available to the public to assist in the production of goods and to the public to assist in the production of goods and
services. (For context, in 2019, about 55% of federal investment was directed to national defense services. (For context, in 2019, about 55% of federal investment was directed to national defense
purposes, whereas about 45% was directed to nondefense purposes.)10 purposes, whereas about 45% was directed to nondefense purposes.)10
Federal Investment (CBO)
CBO’s federal investment is another common metric for measuring government infrastructure CBO’s federal investment is another common metric for measuring government infrastructure
investment. CBO considers federal investment to consist of government spending in three broad investment. CBO considers federal investment to consist of government spending in three broad
areas: physical capital, research and development, and education and training. Physical capital areas: physical capital, research and development, and education and training. Physical capital
includes structures; major equipment; and software, information systems, and technology. CBO includes structures; major equipment; and software, information systems, and technology. CBO
stipulates that to qualify as federal investment, physical capital must have a useful life of at least stipulates that to qualify as federal investment, physical capital must have a useful life of at least
two years. Research and development includes spending on basic research, applied research, and two years. Research and development includes spending on basic research, applied research, and
the development of new products and technologies. Education and training investment includes the development of new products and technologies. Education and training investment includes
spending on early childhood through post-secondary education and job and vocational training. spending on early childhood through post-secondary education and job and vocational training.
CBO does not include any programs or systems that can be immediately consumed, even if those CBO does not include any programs or systems that can be immediately consumed, even if those
programs might indirectly improve future productivity, such as health care or school lunches.11 programs might indirectly improve future productivity, such as health care or school lunches.11
CBO’s measurement is similar to BEA’s, although BEA’s does not include spending on CBO’s measurement is similar to BEA’s, although BEA’s does not include spending on
education and training. However, the methodology for tracking and calculating the data is not the education and training. However, the methodology for tracking and calculating the data is not the
same, and therefore CBO’s federal investment less education and training does not necessarily same, and therefore CBO’s federal investment less education and training does not necessarily
equate to BEA’s gross government investment. equate to BEA’s gross government investment.
The Economy and Public Infrastructure Investment
Economists Economists ~~general y~~generally agree that infrastructure is a critical factor of economic agree that infrastructure is a critical factor of economic ~~wel~~ well-being, -being,
enabling private businesses and individuals to produce goods and services in a more efficient enabling private businesses and individuals to produce goods and services in a more efficient
manner. For businesses, infrastructure can help to lower fixed costs of production, manner. For businesses, infrastructure can help to lower fixed costs of production, ~~especial y~~especially
transportation costs, which are often a central determinant of where businesses are located.12 For transportation costs, which are often a central determinant of where businesses are located.12 For
households, a wide variety of final goods and services are provided through infrastructure households, a wide variety of final goods and services are provided through infrastructure
services, such as water, energy, and telecommunications.13 Infrastructure tends to benefit the services, such as water, energy, and telecommunications.13 Infrastructure tends to benefit the

https://www.bea.gov/sites/default/files/methodologies/nipa-handbook-all-chapters.pdf. https://www.bea.gov/sites/default/files/methodologies/nipa-handbook-all-chapters.pdf.
9 Investment in defense is generally not considered infrastructure. Even when only considering nondefense government 9 Investment in defense is generally not considered infrastructure. Even when only considering nondefense government
grossgross investment, this measure willinvestment, this measure will not fit everyone’s definition of not fit everyone’s definition of infrastructure, and it may therefore be prudent to , and it may therefore be prudent to
look at several sourceslook at several sources of data to study a fullof data to study a full array of investment that both directly and indirectly could affect array of investment that both directly and indirectly could affect
productivity and long-term growth. Furthermore, this and other data in this report do not account for private productivity and long-term growth. Furthermore, this and other data in this report do not account for private
investment, which is significant in the United States. Without investment, which is significant in the United States. Without ~~consider ing~~considering private infrastructure investment, it may be private infrastructure investment, it may be
difficult to ascertain a fulldifficult to ascertain a full picture of the state of infrastructure in the United States or compare infrastructure investment picture of the state of infrastructure in the United States or compare infrastructure investment
in the United States to infrastructure investment in other countries. in the United States to infrastructure investment in other countries.
10 CRS10 CRS calculations basedcalculations based on data from BEA. on data from BEA.
11 CBO,11 CBO, Budgeting for Federal Investment.
12 Ward Romp and Jakob de Haan, “Public Capital and Economic Growth: A Critical Survey,”12 Ward Romp and Jakob de Haan, “Public Capital and Economic Growth: A Critical Survey,” Perspektiven der
Wirtschaftspolitik,, vol. 8, no. 51 (April 2007), pp. 6-52. vol. 8, no. 51 (April 2007), pp. 6-52.
13 Stephane Straub,13 Stephane Straub, “Infrastructure and Development: A Critical Appraisal of the Macro“Infrastructure and Development: A Critical Appraisal of the Macro -Level Literature,” -Level Literature,” Journal of
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economy economy ~~overal~~ overall, as it , as it ~~al ows~~allows more goods and services to be produced with the same level of more goods and services to be produced with the same level of
inputs, fostering long-term economic growth. inputs, fostering long-term economic growth.
Many observers debate the optimal amount of government infrastructure investment. Many observers debate the optimal amount of government infrastructure investment. Al
All infrastructure investments are not the same; the impact of these investments is likely to depend on infrastructure investments are not the same; the impact of these investments is likely to depend on
a few key considerations, including the way in which the investments are financed and the timing a few key considerations, including the way in which the investments are financed and the timing
of the investments with respect to the business cycle. This section of the report focuses on the of the investments with respect to the business cycle. This section of the report focuses on the
ways in which additional infrastructure investments by the government affect economic output ways in which additional infrastructure investments by the government affect economic output
and employment and examines how certain factors are likely to amplify or limitand employment and examines how certain factors are likely to amplify or limit its economic its economic
impact. impact.
Effects on Economic Output
An increase in the stock of public capital, such as new or improved transportation and water An increase in the stock of public capital, such as new or improved transportation and water
systems, systems, ~~general y~~generally results in higher long-term levels of economic output.14 It results in higher long-term levels of economic output.14 It ~~al ows~~allows individuals individuals
and businesses to be more productive in the long term by freeing up time and resources that can and businesses to be more productive in the long term by freeing up time and resources that can
be put toward generating additional economic output or used to enjoy more leisure time. For be put toward generating additional economic output or used to enjoy more leisure time. For
example, a new bridge may greatly shorten travel distances for truck drivers, example, a new bridge may greatly shorten travel distances for truck drivers, ~~al owing~~allowing them to them to
deliver goods to consumers more quickly and at a lower cost. These changes result in productivity deliver goods to consumers more quickly and at a lower cost. These changes result in productivity
growth for the economy as a whole, which is the most important determinant of long-term growth for the economy as a whole, which is the most important determinant of long-term
economic growth. economic growth.
The extent to which public infrastructure investment results in long-term output growth depends The extent to which public infrastructure investment results in long-term output growth depends
in part on how productive a given infrastructure project is. As mentioned previously, core in part on how productive a given infrastructure project is. As mentioned previously, core
infrastructure infrastructure ~~wil~~ will tend to increase productivity more so than other types of infrastructure; tend to increase productivity more so than other types of infrastructure;
however, an infrastructure project that does not increase productivity would not contribute to however, an infrastructure project that does not increase productivity would not contribute to
long-term growth, even if it is a core infrastructure project. For example, building a road between long-term growth, even if it is a core infrastructure project. For example, building a road between
two cities may increase productivity two cities may increase productivity ~~substantial y~~substantially, whereas building a second road may increase , whereas building a second road may increase
productivity only slightly, and building a third road may not increase productivity at productivity only slightly, and building a third road may not increase productivity at al all. Or, if . Or, if
both cities are sparsely populated and separated by difficult terrain, building a six-lane highway both cities are sparsely populated and separated by difficult terrain, building a six-lane highway
connecting the two might not be an efficient investment. connecting the two might not be an efficient investment.
Ample research has attempted to estimate the impact of public infrastructure investment on Ample research has attempted to estimate the impact of public infrastructure investment on
economic output. For example, a 2014 literature review15 found that a 1% increase in the public economic output. For example, a 2014 literature review15 found that a 1% increase in the public
capital stock16 (about $157 capital stock16 (about $157 ~~bil ion~~billion in 2019 in the United States) would increase private-sector in 2019 in the United States) would increase private-sector
economic output by 0.083% in the short term (about $14.7 economic output by 0.083% in the short term (about $14.7 ~~bil ion~~billion).17 The same 1% increase ).17 The same 1% increase
would increase the long-term level of private-sector economic output by 0.122% (about $21.6 would increase the long-term level of private-sector economic output by 0.122% (about $21.6
~~bil ion~~ billion in 2019).18 Meanwhile, CBO estimates that a 1% increase in public capital would increase in 2019).18 Meanwhile, CBO estimates that a 1% increase in public capital would increase
the long-term level of private-sector output by 0.06% (about $10.6 the long-term level of private-sector output by 0.06% (about $10.6 ~~bil ion~~billion in 2019).19 It is in 2019).19 It is
important to note that the estimated impact is exclusively for private-sector economic output important to note that the estimated impact is exclusively for private-sector economic output

~~Developm ental~~ Developmental Studies, vol. 47, no. 5 (May 2011), pp. 683, vol. 47, no. 5 (May 2011), pp. 683 -708. -708.
14 Valerie14 Valerie A. Ramey, A. Ramey, The Macroeconomic Consequences of Infrastructure Investment, National Bureau of Economic , National Bureau of Economic
Research (NBER), Working Paper no. 27625, July 2020. Research (NBER), Working Paper no. 27625, July 2020.
15 Even though not all studies 15 Even though not all studies ~~considered~~ considered share the same definition of share the same definition of infrastructure, , public capital stock is is generally generally
defineddefined somewhat more narrowly. somewhat more narrowly.
16 16 Public capital stock refers to government-owned assets that are used refers to government-owned assets that are used in the production process. in the production process.
17 Bom and Ligthart, “What Have We Learned from 17 Bom and Ligthart, “What Have We Learned from ~~T hree~~Three Decades of Research on the Productivity of Public Capital?” Decades of Research on the Productivity of Public Capital?”
18 Bom and Ligthart, “What Have We Learned from 18 Bom and Ligthart, “What Have We Learned from ~~T hree~~Three Decades of Research on the Decades of Research on the ~~P roductivity~~Productivity of Public Capital?” of Public Capital?”
19 CBO,19 CBO, The Macroeconomic and Budgetary Effects of Federal Investment, June 2016, pp. 24-25, https://www.cbo.gov/, June 2016, pp. 24-25, https://www.cbo.gov/
publication/51628. publication/51628.
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rather than total economic output, as the impact would likely be larger if total economic output rather than total economic output, as the impact would likely be larger if total economic output
were being evaluated. were being evaluated. ~~Additional y,~~ Additionally, these are only average estimates, and the economic impact these are only average estimates, and the economic impact
depends on how the investment is financed, broader economic conditions when the investment is depends on how the investment is financed, broader economic conditions when the investment is
made, and the type of infrastructure investment. made, and the type of infrastructure investment.
Timing related to when infrastructure investments are made and when benefits are realized is Timing related to when infrastructure investments are made and when benefits are realized is
another consideration. Many economists believe that public infrastructure investment is not an another consideration. Many economists believe that public infrastructure investment is not an
effective effective short-term stimulus tool, although there is some debate surrounding this idea. A recent stimulus tool, although there is some debate surrounding this idea. A recent
National Bureau of Economic Research (NBER) working paper—which focuses its analysis on National Bureau of Economic Research (NBER) working paper—which focuses its analysis on
public capital investment—finds that short-run stimulus multipliers20 from infrastructure public capital investment—finds that short-run stimulus multipliers20 from infrastructure
investment are investment are ~~smal er~~smaller than those from other types of government spending, due mainly to the than those from other types of government spending, due mainly to the
relativelyrelatively long time frame for building core infrastructure as long time frame for building core infrastructure as ~~wel~~ well as public infrastructure as public infrastructure
investment crowding out more private spending as compared to other types of government investment crowding out more private spending as compared to other types of government
spending, according to the authors’ model.21 Other studies, however, do find that infrastructure spending, according to the authors’ model.21 Other studies, however, do find that infrastructure
investment can have positive short-term impacts on gross domestic product (GDP),22 provided investment can have positive short-term impacts on gross domestic product (GDP),22 provided
certain economic conditions and methods of financing. For example, the Penn Wharton Budget certain economic conditions and methods of financing. For example, the Penn Wharton Budget
Model (PWBM)—which does not define Model (PWBM)—which does not define infrastructure but rather analyzes specific proposed or but rather analyzes specific proposed or
enacted legislation—found that an additionalenacted legislation—found that an additional ~~$300 bil ion~~ $300 billion of federal infrastructure grants in 2020 of federal infrastructure grants in 2020
would have increased GDP by up to $360 would have increased GDP by up to $360 ~~bil ion~~ billion per year for 2020 and 2021.23 per year for 2020 and 2021.23
Financing24
Government investment is financed (or funded) in two distinct ways: deficit financing or deficit- Government investment is financed (or funded) in two distinct ways: deficit financing or deficit-
neutral financing. The short-term and long-term impact of infrastructure investment can differ neutral financing. The short-term and long-term impact of infrastructure investment can differ
depending on the type of financing used. Investments are considered deficit financed if there is no depending on the type of financing used. Investments are considered deficit financed if there is no
decrease in government spending or increase in tax revenue to offset the new spending. decrease in government spending or increase in tax revenue to offset the new spending.
Investments are considered deficit neutral if there is a decrease in other government spending or Investments are considered deficit neutral if there is a decrease in other government spending or
an increase in revenues through taxes, user fees, or others to offset the new spending. an increase in revenues through taxes, user fees, or others to offset the new spending.
Deficit Financing
The total economic impact of deficit financing for infrastructure investment involves opposing The total economic impact of deficit financing for infrastructure investment involves opposing
forces with respect to economic output. In the short term, additional public investment is likelyforces with respect to economic output. In the short term, additional public investment is likely to to
boost economic output both directly and indirectly. As the government spends additional funds on boost economic output both directly and indirectly. As the government spends additional funds on
infrastructure projects, this directly increases economic output as the government purchases infrastructure projects, this directly increases economic output as the government purchases

20 A multiplier measures20 A multiplier measures the effect of a policy on output. For example, if the government decreased taxes by $1 and the effect of a policy on output. For example, if the government decreased taxes by $1 and
output increased by $0.50, the tax decrease wouldoutput increased by $0.50, the tax decrease would ~~be said~~ be said to have a multiplier of 0.5.to have a multiplier of 0.5.
21 Ramey, 21 Ramey, The Macroeconomic Consequences of Infrastructure Investment, pp. 41-42. , pp. 41-42.
22 Gross22 Gross domestic product isdomestic product is a measure of the value of all final goodsa measure of the value of all final goods and services producedand services produced in a country in a given in a country in a given
period of time. period of time.
23 Jon Huntley, Zheli He, and Kody Carmody, “Short23 Jon Huntley, Zheli He, and Kody Carmody, “Short ~~-T erm~~-Term Economic Effects of a ‘Phase 4’ Infrastructure Response to Economic Effects of a ‘Phase 4’ Infrastructure Response to
Coronavirus,” PWBM, April 16, 2020. Coronavirus,” PWBM, April 16, 2020.
24 24 ~~T he~~The specific financing mechanism—for example, direct government spending, tax incentives, loan guarantees, specific financing mechanism—for example, direct government spending, tax incentives, loan guarantees,
creating public-private partnerships—may also have important ramifications for the economic impact of government creating public-private partnerships—may also have important ramifications for the economic impact of government
investment. In general, most literature on the subject focuses on instances in which either national or regional investment. In general, most literature on the subject focuses on instances in which either national or regional
governments spend on infrastructure directly, as this is the more common approach historically, though other options governments spend on infrastructure directly, as this is the more common approach historically, though other options
for financing infrastructure have been includedfor financing infrastructure have been included as possibleas possible ~~o ptions~~ options in current debates. However, for brevity and clarity in current debates. However, for brevity and clarity
given the current uncertainty regarding which, if any, alternative financing mechanisms may be includedgiven the current uncertainty regarding which, if any, alternative financing mechanisms may be included in future in future
legislation, legislation, ~~t his~~this report focuses on the economic impact of spending undertaken directly by the government report focuses on the economic impact of spending undertaken directly by the government . For a . For a
discussiondiscussion of some of the other infrastructure financing mechanisms, see CRSof some of the other infrastructure financing mechanisms, see CRS Report R43308, Report R43308, Infrastructure Finance
and Debt to Support Surface Transportation ~~Investm ent~~Investment, by William J. Mallett and Grant A. Driessen. , by William J. Mallett and Grant A. Driessen.
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goods and services from contractors.25 Moreover, deficit-financed investments may indirectly goods and services from contractors.25 Moreover, deficit-financed investments may indirectly
increase economic output even further via the multiplier effect.26 The multiplier effect suggests increase economic output even further via the multiplier effect.26 The multiplier effect suggests
that $1 of government spending may increase economic output by more than $1, particularly that $1 of government spending may increase economic output by more than $1, particularly
during economic downturns. For example, as the government hires contractors to complete new during economic downturns. For example, as the government hires contractors to complete new
infrastructure projects, the employees and suppliers utilized by the contractors now have infrastructure projects, the employees and suppliers utilized by the contractors now have
additional money as additional money as ~~wel and wil likely~~ well and will likely spend at least some of it on goods and services provided spend at least some of it on goods and services provided
by other businesses. The successive flow of funds, first from the government to contractors, then by other businesses. The successive flow of funds, first from the government to contractors, then
to employees and suppliers, may result in a larger GDP increase than the original spending by the to employees and suppliers, may result in a larger GDP increase than the original spending by the
government. However, government spending affects aggregate demand only once the funds are government. However, government spending affects aggregate demand only once the funds are
~~actual y~~actually distributed. For many infrastructure projects it may take an extended period of time for distributed. For many infrastructure projects it may take an extended period of time for
funds to funds to ~~actual y~~actually be spent, as projects must first be selected, competing bids reviewed, and so on. be spent, as projects must first be selected, competing bids reviewed, and so on.
Thus, the short-term impact of infrastructure investment may take longer to materialize than the Thus, the short-term impact of infrastructure investment may take longer to materialize than the
impacts of other types of government spending that can be implemented faster, such as cash impacts of other types of government spending that can be implemented faster, such as cash
transfers to individuals. transfers to individuals.
Although deficit-financed investment may increase short-term economic output, the medium- to Although deficit-financed investment may increase short-term economic output, the medium- to
long-term impact may be reduced due to the “crowding out” of private investment. Government long-term impact may be reduced due to the “crowding out” of private investment. Government
borrowing borrowing ~~general y~~generally results in higher interest rates. As a result, private investment and interest- results in higher interest rates. As a result, private investment and interest-
sensitive consumer spending tends to decrease. CBO estimates that a $1 increase in the federal sensitive consumer spending tends to decrease. CBO estimates that a $1 increase in the federal
deficit decreases private investment by about 33 cents.27 The replacement of private investment deficit decreases private investment by about 33 cents.27 The replacement of private investment
with public investment is often of concern to economists because, on average, private investment with public investment is often of concern to economists because, on average, private investment
is thought to be more productive than public investment.28 So although deficit-financed is thought to be more productive than public investment.28 So although deficit-financed
investment is more likelyinvestment is more likely to produce short-term gains in economic output, it may impose long-to produce short-term gains in economic output, it may impose long-
term costs to economic output as it replaces some amount of private investment. term costs to economic output as it replaces some amount of private investment.
Deficit-Neutral Financing
Alternatively,Alternatively, deficit-neutral infrastructure investment is unlikely to significantly affect economic deficit-neutral infrastructure investment is unlikely to significantly affect economic
output in the short term. When investment is offset by reducing other spending, it has no output in the short term. When investment is offset by reducing other spending, it has no
immediate impact on aggregate demand because government spending remains level. Moreover, immediate impact on aggregate demand because government spending remains level. Moreover,
because the government is not borrowing additional money, interest rates are unlikely to change because the government is not borrowing additional money, interest rates are unlikely to change
in the short term. However, depending on what types of spending are cut or taxes are raised, in the short term. However, depending on what types of spending are cut or taxes are raised,
offsets could have positive or negative effects on long-term output that would need to be weighed offsets could have positive or negative effects on long-term output that would need to be weighed
against the long-term benefits of additional infrastructure spending. Although deficit-neutral against the long-term benefits of additional infrastructure spending. Although deficit-neutral
public investment is not expected to have any significant impacts on short-term economic output, public investment is not expected to have any significant impacts on short-term economic output,
it is less likelyit is less likely to result in crowding out of private investment. As such, additional deficit-neutral to result in crowding out of private investment. As such, additional deficit-neutral
investment is expected to have a larger positive impact on long-term economic output than investment is expected to have a larger positive impact on long-term economic output than
deficit-financed investment does, deficit-financed investment does, al all else equal. else equal.
Comparison
A number of studies have attempted to estimate the magnitude of the effect of the different types A number of studies have attempted to estimate the magnitude of the effect of the different types
of infrastructure investment financing. Due to the complexity of making such estimates and the of infrastructure investment financing. Due to the complexity of making such estimates and the
large effect a study’s economic modeling and the availabilitylarge effect a study’s economic modeling and the availability of data can have on results, different of data can have on results, different

25 Economic output, as measured25 Economic output, as measured by GDP, necessarily increases as the government spends money, because government by GDP, necessarily increases as the government spends money, because government
expenditures are includedexpenditures are included as as a component of GDP. a component of GDP.
26 Nicoletta Batini et al., 26 Nicoletta Batini et al., Fiscal Multipliers: Size, Determinants, and Use in Macroeconomic Projections, International , International
Monetary Fund (IMF), September 2014, https://www.imf.org/external/pubs/ft/tnm/2014/tnm1404.pdf. Monetary Fund (IMF), September 2014, https://www.imf.org/external/pubs/ft/tnm/2014/tnm1404.pdf.
27 CBO, 27 CBO, The Macroeconomic and Budgetary Effects of Federal Investment, p. 9. , p. 9.
28 CBO,28 CBO, The Macroeconomic and Budgetary Effects of Federal Investment, p. 2. , p. 2.
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estimates have been found across studies. Nevertheless, examining some of these studies can be estimates have been found across studies. Nevertheless, examining some of these studies can be
informative. informative.
In an attempt to account for how different financing mechanisms may affect public investment’s In an attempt to account for how different financing mechanisms may affect public investment’s
impact on output, International Monetary Fund (IMF) researchers estimated these impacts impact on output, International Monetary Fund (IMF) researchers estimated these impacts
separately for deficit-financed and deficit-neutral investment. The authors considered government separately for deficit-financed and deficit-neutral investment. The authors considered government
investment in public capital for advanced economies. The authors found that an increase in investment in public capital for advanced economies. The authors found that an increase in
deficit-financed public investment of 1 percentage point of GDP tends to increase deficit-financed public investment of 1 percentage point of GDP tends to increase ~~overal~~ overall GDP by GDP by
0.9% within the first year and by 2.9% after four years, but the authors found no significant 0.9% within the first year and by 2.9% after four years, but the authors found no significant
change in GDP when investments were deficit neutral.29 Meanwhile, a 2016 analysis by the CBO change in GDP when investments were deficit neutral.29 Meanwhile, a 2016 analysis by the CBO
of hypothetical federal investments also suggested that deficit-neutral investment would result of hypothetical federal investments also suggested that deficit-neutral investment would result
littlelittle short-run growth and deficit-financed investment resulted in a short-term boost. However, short-run growth and deficit-financed investment resulted in a short-term boost. However,
this study projected further out in time and found that deficit-neutral investment resulted in higher this study projected further out in time and found that deficit-neutral investment resulted in higher
long-run growth than did deficit-financed investment. CBO found that a deficit-financed increase long-run growth than did deficit-financed investment. CBO found that a deficit-financed increase
in public investment of $100 in public investment of $100 ~~bil ion~~ billion would increase GDP by about $22 would increase GDP by about $22 ~~bil ion~~ billion in each of its first in each of its first
two years and resulted in the level of annual GDP being about $1 two years and resulted in the level of annual GDP being about $1 ~~bil ion~~ billion higher after 10 years higher after 10 years
compared with a baseline. When deficit neutral, the same investment would not increase GDP in compared with a baseline. When deficit neutral, the same investment would not increase GDP in
the short term but would result in the level of GDP being about $4 the short term but would result in the level of GDP being about $4 ~~bil ion~~ billion higher after 10 years higher after 10 years
compared with a baseline.30compared with a baseline.30
Much of the difference between the results produced by the CBO and IMF researchers is due to Much of the difference between the results produced by the CBO and IMF researchers is due to
differing estimates of how public capital impacts productivity and the degree to which public differing estimates of how public capital impacts productivity and the degree to which public
investment crowds out private investment and also the fact that the IMF considers several investment crowds out private investment and also the fact that the IMF considers several
advanced economies in its assessment while CBO limits its analysis to the United States. CBO advanced economies in its assessment while CBO limits its analysis to the United States. CBO
assumes that public capital is less effective at increasing productivity and is more likely to crowd assumes that public capital is less effective at increasing productivity and is more likely to crowd
out private investment than the IMF researchers assumed. out private investment than the IMF researchers assumed.
An additional An additional possible downside of deficit-financed investment is the potential increase in the possible downside of deficit-financed investment is the potential increase in the
debt-to-GDP ratio. Elevated debt-to-GDP ratios may impede economic growth if they lead to debt-to-GDP ratio. Elevated debt-to-GDP ratios may impede economic growth if they lead to
macroeconomic instability, such as rising interest rates on government debt.31 The U.S. debt-to-macroeconomic instability, such as rising interest rates on government debt.31 The U.S. debt-to-
GDP ratio has increased significantly during the COVID-19 pandemic, rising to over 100% in GDP ratio has increased significantly during the COVID-19 pandemic, rising to over 100% in
FY2020, and is projected to continue rising rapidly in FY2021 and beyond.32 Interest rates on this FY2020, and is projected to continue rising rapidly in FY2021 and beyond.32 Interest rates on this
debt have remained relatively low, suggesting that investors are confident in the United States’ debt have remained relatively low, suggesting that investors are confident in the United States’
~~ability~~ ability to continue meeting its debt obligations.33 The already elevated ratio of debt to GDP may to continue meeting its debt obligations.33 The already elevated ratio of debt to GDP may
give pause to some when considering deficit-financed infrastructure investment. However, give pause to some when considering deficit-financed infrastructure investment. However,
deficit-financed investment may not necessarily increase the debt-to-GDP ratio, as the increase in deficit-financed investment may not necessarily increase the debt-to-GDP ratio, as the increase in
economic output may be greater than the increase in debt.34 Some research has suggested that economic output may be greater than the increase in debt.34 Some research has suggested that

~~29 Abdul Abiad,~~ 29 Abdul Abiad, Davide Furceri, and Petia Davide Furceri, and Petia ~~T opalova~~Topalova, , The Macroeconomic Effects of Public Investment: Evidence from
Advanced ~~Econom ies~~Economies, IMF Working Paper, vol. WP/15/95, May 2015, https://www.imf.org/external/pubs/ft/wp/2015/, IMF Working Paper, vol. WP/15/95, May 2015, https://www.imf.org/external/pubs/ft/wp/2015/
wp1595.pdf. wp1595.pdf.
30 CBO, 30 CBO, The Macroeconomic and Budgetary Effects of Federal Investment. .
31 Carmen Reinhart, Vincent Reinhart, and Kenneth Rogoff, 31 Carmen Reinhart, Vincent Reinhart, and Kenneth Rogoff, Debt Overhangs: Past and Present, NBER,, NBER, Working Working
Paper no. 18015, April 2012, https://www.nber.org/papers/w18015. Paper no. 18015, April 2012, https://www.nber.org/papers/w18015.
32 Federal Reserve Bank of St. Louis32 Federal Reserve Bank of St. Louis and OMB, “Federal Debt Heldand OMB, “Federal Debt Held by the Public as Percent of Gross Domestic by the Public as Percent of Gross Domestic
ProductProduct ,” https://fred.stlouisfed.org/series/FYGFGDQ188S. ,” https://fred.stlouisfed.org/series/FYGFGDQ188S.
33 For further information about COVID-19 and current deficit and debt patterns, see CRS 33 For further information about COVID-19 and current deficit and debt patterns, see CRS Report R46729, Report R46729, Federal
Deficits, Growing Debt, and the ~~Econom y~~Economy in the Wake of COVID-19, by Lida, by Lida R. Weinstock. R. Weinstock.
34 For more discussion 34 For more discussion of this topic, refer to CRSof this topic, refer to CRS Report R44383, Report R44383, Deficits, Debt, and the Economy: An Introduction, by , by
Grant A. Driessen. Grant A. Driessen.
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deficit-financed investment has no impact on the debt-to-GDP ratio and can even decrease it,35 deficit-financed investment has no impact on the debt-to-GDP ratio and can even decrease it,35
whereas other research has suggested that such investment whereas other research has suggested that such investment ~~wil likely~~ will likely increase the ratio.36 As increase the ratio.36 As
discussed in the following section, the magnitude of the increase in economic output discussed in the following section, the magnitude of the increase in economic output ~~wil~~
~~additional y~~ will additionally depend in part on the business cycle. depend in part on the business cycle.
Business Cycle Timing
The business cycle timing of additional public investment is likely The business cycle timing of additional public investment is likely to alter the impact of public to alter the impact of public
investment on short-term economic output. Current economic theory suggests that in the short investment on short-term economic output. Current economic theory suggests that in the short
term, if public investment is made during a recession, the impact on economic output term, if public investment is made during a recession, the impact on economic output ~~wil~~ will be be
larger than if the same investment were made during an economic expansion.37 When the larger than if the same investment were made during an economic expansion.37 When the
economy is in recession, the short-term economic boost from additional public spending is economy is in recession, the short-term economic boost from additional public spending is
expected to be larger, because various economic inputs are being underutilized and can be expected to be larger, because various economic inputs are being underutilized and can be ~~cal ed~~
called up for production relatively quickly. For example, during a recession large numbers of up for production relatively quickly. For example, during a recession large numbers of
unemployed workers are unemployed workers are ~~general y~~generally available, and factories are running below capacity, available, and factories are running below capacity, ~~al owing~~allowing
production to ramp up quickly when the government begins offering new contracts to companies. production to ramp up quickly when the government begins offering new contracts to companies.
Alternatively,Alternatively, when the economy is expanding healthily, the boost to short-term economic activity when the economy is expanding healthily, the boost to short-term economic activity
may be may be ~~smal er~~smaller because there is less excess capacity in the economy. because there is less excess capacity in the economy. ~~Additional y~~Additionally, if undertaken , if undertaken
at full employment, additional spending may result in higher rates of inflation, or the Federal at full employment, additional spending may result in higher rates of inflation, or the Federal
Reserve might raise interest rates to counter rising inflation, which would decrease the impact on Reserve might raise interest rates to counter rising inflation, which would decrease the impact on
short-term output. short-term output.
Recent empirical research has largely confirmed this assumption. A recent article estimated that Recent empirical research has largely confirmed this assumption. A recent article estimated that
the impact could be about 1.5 times larger during a recession than during an expansion, the impact could be about 1.5 times larger during a recession than during an expansion,
suggesting that a 1% increase in public investment would boost economic output by 3.4% during suggesting that a 1% increase in public investment would boost economic output by 3.4% during
a recession and about 2.3% during an expansion.38 A recent article published by the IMF a recession and about 2.3% during an expansion.38 A recent article published by the IMF
suggested an even suggested an even ~~smal er~~smaller impact during an expansion. The authors consider public investment impact during an expansion. The authors consider public investment
and the stock of public capital as a proxy measure for infrastructure. The authors found that and the stock of public capital as a proxy measure for infrastructure. The authors found that
during a recession, an increase in investment spending of 1 percentage point of GDP during a recession, an increase in investment spending of 1 percentage point of GDP ~~w ould~~
~~potential y~~would potentially increase economic output by 1.5% in the first year and by 3% after four years, increase economic output by 1.5% in the first year and by 3% after four years,
whereas there was no significant change in short-term output when public investment was made whereas there was no significant change in short-term output when public investment was made
during an expansion.39during an expansion.39
The U.S. economy is The U.S. economy is ~~stil~~ still recovering from the COVID-19 pandemic. It is hard to know whether recovering from the COVID-19 pandemic. It is hard to know whether
the United States is the United States is ~~stil technical y~~still technically in a recession or not, and it may be some time before NBER in a recession or not, and it may be some time before NBER
publishes information regarding the exact timing of the recession caused by the pandemic. In any publishes information regarding the exact timing of the recession caused by the pandemic. In any
case, there are case, there are ~~stil~~ still portions of the economy that are depressed compared to a pre-pandemic portions of the economy that are depressed compared to a pre-pandemic
baseline; thus, it is possible that public infrastructure investment undertaken at this point would baseline; thus, it is possible that public infrastructure investment undertaken at this point would
have a relatively large multiplierhave a relatively large multiplier effect in the short run. The fiscal and monetary response to the effect in the short run. The fiscal and monetary response to the
pandemic was unprecedented, and some economists and policymakers have expressed concern pandemic was unprecedented, and some economists and policymakers have expressed concern
that more spending at this point would likelythat more spending at this point would likely overheat the economy.40overheat the economy.40

35 Aseel Almansour et al., 35 Aseel Almansour et al., World Economic Outlook: Legacies, Clouds, Uncertainties, IMF, October 2014, pp. 75-114, , IMF, October 2014, pp. 75-114,
http://www.imf.org/en/Publications/WEO/Issues/2016/12/31/Legacies-Clouds-Uncertainties. http://www.imf.org/en/Publications/WEO/Issues/2016/12/31/Legacies-Clouds-Uncertainties.
36 CBO, 36 CBO, The Macroeconomic and Budgetary Effects of Federal Investment. .
37 Alan J. Auerbach37 Alan J. Auerbach and Yuriy Gorodnichenko, “Measuring the Output Responses to Fiscal Policy,” and Yuriy Gorodnichenko, “Measuring the Output Responses to Fiscal Policy,” American
~~Econom ic~~Economic Journal, vol. 4, no. 2 (May 2012), pp. 1-27. , vol. 4, no. 2 (May 2012), pp. 1-27.
38 Auerbach and Gorodnichenko, “Measuring the Output Responses to Fiscal Policy.” 38 Auerbach and Gorodnichenko, “Measuring the Output Responses to Fiscal Policy.”
39 Almansour et al., 39 Almansour et al., World Economic Outlook, pp. 75-114. , pp. 75-114.
40 For example, see Lawrence H. Summers,40 For example, see Lawrence H. Summers, “Opinion: “Opinion: ~~T he~~The Biden Stimulus Biden Stimulus Is Admirably Ambitious. But It Brings Is Admirably Ambitious. But It Brings
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Employment Effects
Changes in economic output tend to occur alongside changes in employment; as the economy Changes in economic output tend to occur alongside changes in employment; as the economy
produces more goods and services, it produces more goods and services, it ~~general y~~generally requires more people to produce those goods and requires more people to produce those goods and
services. A long-standing economic rule of thumb services. A long-standing economic rule of thumb ~~cal ed~~called Okun’s Law suggests that increased Okun’s Law suggests that increased
economic growth economic growth ~~general y~~generally leads to increased employment and vice versa.41 This relationship is leads to increased employment and vice versa.41 This relationship is
most obvious during economic downturns, when a decrease in economic growth most obvious during economic downturns, when a decrease in economic growth ~~general y~~generally occurs occurs
alongside a decrease in employment and a rising unemployment rate. The same is alongside a decrease in employment and a rising unemployment rate. The same is ~~general y~~generally true true
during times of economic growth, with rising employment and a decreasing unemployment rate. during times of economic growth, with rising employment and a decreasing unemployment rate.
Assuming that increased public investment spurs additional economic output, there Assuming that increased public investment spurs additional economic output, there ~~wil~~ will likely be likely be
some change in employment as some change in employment as ~~wel~~ well. In addition, faster productivity growth is expected to reduce . In addition, faster productivity growth is expected to reduce
the long-term unemployment rate, the long-term unemployment rate, ~~al owing~~allowing the economy to sustainably operate at lower levels of the economy to sustainably operate at lower levels of
unemployment without increasing the rate of inflation.42 unemployment without increasing the rate of inflation.42
Another way to look at the relationship between economic output and employment involves a Another way to look at the relationship between economic output and employment involves a
basic understanding of how economic output is accounted for. The most prominent measure of basic understanding of how economic output is accounted for. The most prominent measure of
economic output is GDP, which sums the cost of economic output is GDP, which sums the cost of al all goods and services produced during a goods and services produced during a
specific time period. An alternative way to measure total economic output is as the total income specific time period. An alternative way to measure total economic output is as the total income
received within received within al all sectors of the economy in a given period. These two measures sectors of the economy in a given period. These two measures ~~wil~~
~~theoretical y~~will theoretically produce the same amount, as any money paid for goods and services is produce the same amount, as any money paid for goods and services is ~~eventual y~~eventually
paid to other individuals in the form of, for example, salaries, wages, dividends, and rental paid to other individuals in the form of, for example, salaries, wages, dividends, and rental
payments. Therefore, any increase in GDP is also an increase in aggregate incomes. These payments. Therefore, any increase in GDP is also an increase in aggregate incomes. These
increased incomes may be paid out in the form of new jobs or increased pay for existing jobs; it is increased incomes may be paid out in the form of new jobs or increased pay for existing jobs; it is
thus not clear how much an increase in GDP may thus not clear how much an increase in GDP may ~~actual y boost overal~~ actually boost overall employment. employment.
While current research surrounding the employment impact of additional public investment While current research surrounding the employment impact of additional public investment
~~general y~~generally uses different measures of employment, including uses different measures of employment, including ~~overal~~ overall labor demand, employment labor demand, employment
levels, and the unemployment rate, some broad characterization of that research is possible. In levels, and the unemployment rate, some broad characterization of that research is possible. In
general, estimates of the impact of public investment on employment range from a positive general, estimates of the impact of public investment on employment range from a positive
impact to no impact. IMF research suggests that among OECD countries, an increase in public impact to no impact. IMF research suggests that among OECD countries, an increase in public
investment of 1 percentage point of GDP investment of 1 percentage point of GDP ~~general y~~generally decreases the unemployment rate by 0.11% in decreases the unemployment rate by 0.11% in
the short term and 0.35% in the medium term.43 Alternatively, researchers estimated the impact of the short term and 0.35% in the medium term.43 Alternatively, researchers estimated the impact of
increased public capital on labor demand, finding that in the United States a 1% increase in public increased public capital on labor demand, finding that in the United States a 1% increase in public
capital would increase labor demand by 1.13% in the short term, 1.07% in the medium term, and capital would increase labor demand by 1.13% in the short term, 1.07% in the medium term, and
0.08% in the long term.44 As defined by the authors, an increase in labor demand constitutes an 0.08% in the long term.44 As defined by the authors, an increase in labor demand constitutes an
increase in wages, employment, or both; therefore, it is difficult to draw concrete examples of increase in wages, employment, or both; therefore, it is difficult to draw concrete examples of
how public capital may affect employment levels. how public capital may affect employment levels.

~~Some Big Risks, T oo~~ Some Big Risks, Too,” ,” Washington Post, February 4, 2021, https://www.washingtonpost.com/opinions/2021/02/04/, February 4, 2021, https://www.washingtonpost.com/opinions/2021/02/04/
larry-summers-biden-covid-stimulus.larry-summers-biden-covid-stimulus.
41 Edward 41 Edward S. Knotek, “How UsefulS. Knotek, “How Useful Is Okun’s Law?,” Is Okun’s Law?,” Federal Reserve Bank of Kansas City Economic Review, vol. 92, , vol. 92,
no. 4 (Fourth Quarter 2007), pp. 73-103. no. 4 (Fourth Quarter 2007), pp. 73-103.
42 Laurence Ball42 Laurence Ball and Gregory Mankiw,and Gregory Mankiw, ~~“T he~~ “The NAIRU in NAIRU in ~~T heory~~Theory and Practice,” and Practice,” Journal of Economic Perspective, vol. , vol.
16, no. 4 (Fall 2002), pp. 115-136. 16, no. 4 (Fall 2002), pp. 115-136.
43 Abiad, 43 Abiad, Furceri, and Furceri, and ~~T opalova~~Topalova, , The Macroeconomic Effects of Public Investment. .
44 Panicos O. Demetriades and 44 Panicos O. Demetriades and ~~T heofanis~~Theofanis P. Mamuneas, “Intertemporal Output and Employment Effects of Public P. Mamuneas, “Intertemporal Output and Employment Effects of Public
Infrastructure Capital: Evidence from 12 OECD Economies,” Infrastructure Capital: Evidence from 12 OECD Economies,” The ~~Econom ic~~Economic Journal, vol. 110, no. 465 (July 2000), , vol. 110, no. 465 (July 2000),
pp. 687-712. pp. 687-712.
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Financing
In the short term, the method of financing additional public investment is likely In the short term, the method of financing additional public investment is likely to alter its impact to alter its impact
on employment. If additional public spending is deficit neutral, economists estimate that the on employment. If additional public spending is deficit neutral, economists estimate that the
impact on impact on ~~overal~~ overall output is likelyoutput is likely to be minimal in the short term. Therefore, they conclude that to be minimal in the short term. Therefore, they conclude that
investment investment ~~wil~~ will likely not generate new jobs but rather shift jobs to construction and other areas likely not generate new jobs but rather shift jobs to construction and other areas
connected to infrastructure projects. However, economists estimate that a deficit-financed connected to infrastructure projects. However, economists estimate that a deficit-financed
increase in public investment is expected to affect short-term demand and therefore increase increase in public investment is expected to affect short-term demand and therefore increase
employment as demand for labor rises. Researchers with the IMF looked at the impact of employment as demand for labor rises. Researchers with the IMF looked at the impact of
increased public investment on the unemployment rate depending on the mode of financing, increased public investment on the unemployment rate depending on the mode of financing,
finding a significantly larger impact on short-term unemployment when the spending was deficit finding a significantly larger impact on short-term unemployment when the spending was deficit
financed rather than deficit neutral. The researchers found that an increase in public investment of financed rather than deficit neutral. The researchers found that an increase in public investment of
1 percentage point of GDP would 1 percentage point of GDP would ~~potential y~~potentially decrease the unemployment rate by nearly 2%45 decrease the unemployment rate by nearly 2%45
over four years when it was deficit financed but found no impact on the unemployment rate when over four years when it was deficit financed but found no impact on the unemployment rate when
deficit neutral.46 deficit neutral.46
Business Cycle Timing
Similar to public investment’s effect on production discussed above, the ability of public Similar to public investment’s effect on production discussed above, the ability of public
infrastructure investment to generate additional employment is likely to differ based on whether infrastructure investment to generate additional employment is likely to differ based on whether
the economy is in recession or expansion, with a larger boost to employment occurring during a the economy is in recession or expansion, with a larger boost to employment occurring during a
recession. In the midst of a recession, the economy is recession. In the midst of a recession, the economy is ~~general y~~generally operating below its potential with operating below its potential with
numerous unemployed workers, and increased infrastructure investment is likely to have a larger numerous unemployed workers, and increased infrastructure investment is likely to have a larger
impact on employment. Conversely, during an economic expansion, there are fewer unemployed impact on employment. Conversely, during an economic expansion, there are fewer unemployed
individuals, and additionalindividuals, and additional infrastructure investments are less likely to generate new jobs and infrastructure investments are less likely to generate new jobs and
rather would shift jobs toward occupations related to infrastructure, such as construction and rather would shift jobs toward occupations related to infrastructure, such as construction and
architecture. architecture.
Researchers at the IMF estimated the impact of additional public investment on employment Researchers at the IMF estimated the impact of additional public investment on employment
depending on the state of the economy. The authors found that during an expansion, there was no depending on the state of the economy. The authors found that during an expansion, there was no
significant impact on employment. However, during a recession, an increase in public investment significant impact on employment. However, during a recession, an increase in public investment
of 1 percentage point of GDP decreased the unemployment rate by 0.5% after one year and of 1 percentage point of GDP decreased the unemployment rate by 0.5% after one year and
0.75% after four years.47 As of April 2021, the unemployment rate was 6.1%, above the 3.5% rate 0.75% after four years.47 As of April 2021, the unemployment rate was 6.1%, above the 3.5% rate
in February 2020, before the pandemic began. Much of the increased unemployment is a result of in February 2020, before the pandemic began. Much of the increased unemployment is a result of
increases in unemployment in specific industries that have been particular affected by the increases in unemployment in specific industries that have been particular affected by the
COVID-19 pandemic, such as the hospitality industry.48 There is anecdotal evidence to suggest COVID-19 pandemic, such as the hospitality industry.48 There is anecdotal evidence to suggest
that employers are having trouble that employers are having trouble ~~fil ing~~ filling positions, which would positions, which would ~~normal y~~normally be a sign of a be a sign of a
tightening labor market.49 tightening labor market.49 ~~Additional y,~~ Additionally, it is not clear whether the types of workers that are it is not clear whether the types of workers that are ~~stil~~
still unemployed would be able to easily transition into the kinds of jobs infrastructure investment unemployed would be able to easily transition into the kinds of jobs infrastructure investment
might create. In sum, the extent to which public infrastructure investment might affect might create. In sum, the extent to which public infrastructure investment might affect
employment in the short run is largely uncertain at this point. employment in the short run is largely uncertain at this point.

45 In this scenario, a 2% decrease in the unemployment rate will result in less45 In this scenario, a 2% decrease in the unemployment rate will result in less than a 2 percentage point decrease. For than a 2 percentage point decrease. For
example, if unemployment is 10% andexample, if unemployment is 10% and decreases by 2%, the resulting rate woulddecreases by 2%, the resulting rate would be be 9.8%. 9.8%.
46 Abiad,46 Abiad, Furceri, and Furceri, and ~~T opalova~~Topalova, , The Macroeconomic Effects of Public Investment. .
47 Abiad,47 Abiad, Furceri, and Furceri, and ~~T opalova~~Topalova, , The Macroeconomic Effects of Public Investment. .
48 Bureau48 Bureau of Labor Statistics, “of Labor Statistics, “ ~~T he~~The Employment Situation—April 2021,” news release, May 7, 2021, Employment Situation—April 2021,” news release, May 7, 2021,
https://www.bls.gov/news.release/empsit.nr0.htm. https://www.bls.gov/news.release/empsit.nr0.htm.
49 Greg49 Greg Ip, “Ip, “~~T he~~The Job Market Is Job Market Is ~~T ighter T han You T hink~~Tighter Than You Think,” ,” Wall Street Journal, April 21, 2021, https://www.wsj.com/, April 21, 2021, https://www.wsj.com/
articles/the-job-market-is-tighter-than-you-think-11619006400. articles/the-job-market-is-tighter-than-you-think-11619006400.
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Infrastructure Investment in the United States
Nondefense gross (i.e., federal, state, and local) government investment in the United States has Nondefense gross (i.e., federal, state, and local) government investment in the United States has
largely been in decline since the 1960s, largely been in decline since the 1960s, ~~fal ing~~falling from above 4% of GDP to about 2.7% in 2019. from above 4% of GDP to about 2.7% in 2019.
~~Overal~~ Overall, nondefense gross investment, as a percentage of GDP, was even higher for a number of , nondefense gross investment, as a percentage of GDP, was even higher for a number of
years in the 1930s before decreasing significantly during and shortly after the end of World War II years in the 1930s before decreasing significantly during and shortly after the end of World War II
as gross government investment shifted to defense-related spending and GDP grew quickly. as gross government investment shifted to defense-related spending and GDP grew quickly.
Nondefense gross investment in the 1960s then rose to pre–World War II levels and then began Nondefense gross investment in the 1960s then rose to pre–World War II levels and then began
slowly declining over time. slowly declining over time.
Direct nondefense federal investment, which refers to spending that occurs at the federal level Direct nondefense federal investment, which refers to spending that occurs at the federal level
rather than transfers to state and local governments, peaked in the 1930s as a percentage of GDP rather than transfers to state and local governments, peaked in the 1930s as a percentage of GDP
and again in the 1960s before beginning to and again in the 1960s before beginning to ~~gradual y~~gradually decline over the next several decades, decline over the next several decades,
~~fal ing~~falling from about 1.4% of GDP in 1966 to about 0.7% of GDP in 2019, as shown i from about 1.4% of GDP in 1966 to about 0.7% of GDP in 2019, as shown in Figure 1.50 .50
Direct nondefense federal investment in structures also peaked in the 1930s, reaching above 1.0% Direct nondefense federal investment in structures also peaked in the 1930s, reaching above 1.0%
of GDP briefly, then again to a lesser extent in the late 1940s and 1960s at around 0.4% of GDP. of GDP briefly, then again to a lesser extent in the late 1940s and 1960s at around 0.4% of GDP.
It has hovered around 0.1% of GDP since 2000. Direct nondefense federal investment in It has hovered around 0.1% of GDP since 2000. Direct nondefense federal investment in
equipment has been relatively equipment has been relatively ~~smal~~ small as a share of GDP since 1929. It peaked at 0.4% in 1935 and as a share of GDP since 1929. It peaked at 0.4% in 1935 and
has has ~~general y~~generally trended at or below 0.1% of GDP since the 1940s. Direct nondefense federal trended at or below 0.1% of GDP since the 1940s. Direct nondefense federal
investment in investment in ~~intel ectual~~intellectual property products peaked at about 1.0% of GDP in 1966 and has property products peaked at about 1.0% of GDP in 1966 and has
~~general y~~generally trended downward since, to 0.5% in 2019. Of note, the prices of some categories, such trended downward since, to 0.5% in 2019. Of note, the prices of some categories, such
as software, have tended to decrease over time, making it difficult to determine the extent to as software, have tended to decrease over time, making it difficult to determine the extent to
which decreases in investment in dollar terms are a result of decreases in the amount of which decreases in investment in dollar terms are a result of decreases in the amount of
investment versus price effects. investment versus price effects.
Figure 1. Annual Federal Nondefense Investment, 1929-2019
(as a share of GDP) (as a share of GDP)

Source: CRS calculations based on data from the Bureau of Economic Analysis. CRS calculations based on data from the Bureau of Economic Analysis.

50 50 Direct federal investment is limited to funds spent directly by the federal government on investment projects. is limited to funds spent directly by the federal government on investment projects. ~~Fun ds~~Funds
that are transferred to state and local governments for investment by the federal government are recorded as state and that are transferred to state and local governments for investment by the federal government are recorded as state and
local investment, as they are the entities that directly spend the funds on investment projects. local investment, as they are the entities that directly spend the funds on investment projects.
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Transfers from the federal government to state and local government for capital investments have Transfers from the federal government to state and local government for capital investments have
exceeded direct federal spending since the mid-1950s. Transfers to state and local governments exceeded direct federal spending since the mid-1950s. Transfers to state and local governments
for capital investments began in the 1930s and increased through the 1960s to about 0.6% of for capital investments began in the 1930s and increased through the 1960s to about 0.6% of
GDP. These transfers then began to decline through the 1970s, 1980s, and 1990s before rising GDP. These transfers then began to decline through the 1970s, 1980s, and 1990s before rising
rapidly in the 2010s, with much of the increase in 2009 attributable to the American Recovery rapidly in the 2010s, with much of the increase in 2009 attributable to the American Recovery
and Reinvestment Act of 2009 (P.L. 111-5). Transfers, as a percentage of GDP, have now declined and Reinvestment Act of 2009 (P.L. 111-5). Transfers, as a percentage of GDP, have now declined
to levels similar to those in the 1980s and 1990s, around 0.4% of GDP. to levels similar to those in the 1980s and 1990s, around 0.4% of GDP.
According to data from CBO,51 in 2018, the flow of federal nondefense investment was about According to data from CBO,51 in 2018, the flow of federal nondefense investment was about
~~$297 bil ion~~ $297 billion (1.5% of GDP) via both direct spending and transfers to state and local (1.5% of GDP) via both direct spending and transfers to state and local
governments.52 Of the $297 governments.52 Of the $297 ~~bil ion~~billion, roughly $110 was spent on physical capital (largely , roughly $110 was spent on physical capital (largely
analogous to core infrastructure). By physical capital budget function, the largest sum was analogous to core infrastructure). By physical capital budget function, the largest sum was
invested in transportation, accounting for about $64 invested in transportation, accounting for about $64 ~~bil ion~~billion, as shown i, as shown in Figure 2. The next . The next
largest source of investment was natural resources and the environment, which accounted for largest source of investment was natural resources and the environment, which accounted for
about $10 about $10 ~~bil ion~~ billion in 2018. Depending on the budget function, the mix of investments through in 2018. Depending on the budget function, the mix of investments through
direct federal spending and grants to state and local governments varies considerably. Within direct federal spending and grants to state and local governments varies considerably. Within
transportation, about 92% of federal investments are made through grants to state and local transportation, about 92% of federal investments are made through grants to state and local
governments, whereas within energy, almost 50% of federal investments are made through direct governments, whereas within energy, almost 50% of federal investments are made through direct
federal spending. federal spending.

~~51 CBO,~~ 51 CBO, Federal Investment, 1962 to 2018, June 2019, p. 9, https://www.cbo.gov/system/files/2019-06/55375-, June 2019, p. 9, https://www.cbo.gov/system/files/2019-06/55375-
Federal_Investment.pdf. Federal_Investment.pdf.
52 As discussed52 As discussed earlier in this report, CBO measures federal investment differently than BEA does. earlier in this report, CBO measures federal investment differently than BEA does. ~~T herefore~~Therefore, this data , this data
may not be comparable to the other data presented in this section.may not be comparable to the other data presented in this section.
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Figure 2. Physical Capital: Federal Nondefense Investment by Budget Function, 2018
(in (in ~~bil ions of dol ars~~billions of dollars) )

Source: CongressionalCongressional Budget Office, Budget Office, Federal Investment, Exhibit 11, June 27, 2019., Exhibit 11, June 27, 2019.
Notes: “Other” includes the fol owing budget functions: Energy; General Government; General “Other” includes the fol owing budget functions: Energy; General Government; General Science, Space, Science, Space,
and Technology; International Affairs; Health; Education, Training, and Employment Services;and Technology; International Affairs; Health; Education, Training, and Employment Services; Agriculture; and Agriculture; and
Social Security. Social Security.
State and local investment53 has followed a similar pattern over time as investment at the federal State and local investment53 has followed a similar pattern over time as investment at the federal
level but has level but has ~~general y~~generally made up a higher share of GDP. State and local investment peaked in 1939 made up a higher share of GDP. State and local investment peaked in 1939
at 3.64% of GDP before shrinking at 3.64% of GDP before shrinking ~~dramatical y~~dramatically during and shortly after World War II then during and shortly after World War II then
increasing back to about 3% of GDP in the late 1960s, as shown iincreasing back to about 3% of GDP in the late 1960s, as shown in Figure 3. . ~~State~~State and local and local
investment has trended downward somewhat since, investment has trended downward somewhat since, ~~fal ing~~falling to 2% of GDP by 2019. Unlike direct to 2% of GDP by 2019. Unlike direct
federal investment, state and local investment has consistently been largest in the category of federal investment, state and local investment has consistently been largest in the category of
structures. In 2019, state and local spending on structures accounted for 1.6% of GDP as structures. In 2019, state and local spending on structures accounted for 1.6% of GDP as
compared to 0.2% for both equipment and compared to 0.2% for both equipment and ~~intel ectual~~intellectual property products. property products.

53 State and local governments directly invest significantly more in general than the federal government does; however, 53 State and local governments directly invest significantly more in general than the federal government does; however,
some of the direct investments made by state and local governments are the result of transfers from the federal some of the direct investments made by state and local governments are the result of transfers from the federal
government. In 2018, state and local governments directly invested funds equivalent to about 2% of GDP, but the government. In 2018, state and local governments directly invested funds equivalent to about 2% of GDP, but the
federal government also transferred funds equivalent tofederal government also transferred funds equivalent to about 0.4% of GDPabout 0.4% of GDP to state and local governments for capital to state and local governments for capital
investments in that year. Some or all of those transferred funds could beinvestments in that year. Some or all of those transferred funds could be a part of that 2%.a part of that 2%.
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Figure 3. Annual State and Local Investment, 1929-2019
(as a share of GDP) (as a share of GDP)

Source: CRS calculations based on BEA data. CRS calculations based on BEA data.
The ~~American Jobs Plan~~
~~The Biden Administration has put forward a proposal for increased infrastructure spending, cal ed~~
~~the American Jobs Plan.54 The plan cal s for investment to~~
~~ “Fix highways, rebuild bridges, upgrade ports, airports and transit systems;~~
~~ “Deliver clean drinking water, a renewed electric grid, and high-speed~~
~~broadband;~~
~~ “Build, preserve, and retrofit more than two mil ion homes and commercial~~
~~buildings, modernize the nation’s schools and child care facilities, and upgrade~~
~~veterans’ hospitals and federal buildings;~~
~~ “Solidify the infrastructure of our care economy by creating jobs and raising~~
~~wages and benefits for essential home care workers;~~
~~ “Revitalize manufacturing, secure U.S. supply chains, invest in R&D, and train~~
~~Americans for the jobs of the future; and~~
~~ “Create good-quality jobs that pay prevailing wages in safe and healthy~~
~~workplaces while ensuring workers have a free and fair choice to organize, join a~~
~~union, and bargain collectively with their employers.”~~
~~Senate Infrastructure Investment Bill~~
~~Congress has considered various infrastructure proposals, and a major infrastructure bil is currently being~~
~~negotiated in the Senate. The Senate is considering this proposal as an amendment to H.R. 3684, a smal er~~
~~transportation reauthorization bil that passed the House on July 1, 2021. The proposed package is general y not~~
~~as expansive as the American Jobs Plan, and the Senate’s proposals to raise revenue are different.~~

~~54 T he White House, “ Fact Sheet: T he American Jobs Plan,” March 31, 2021, https://www.whitehouse.gov/briefing-~~
~~room/statements-releases/2021/03/31/fact-sheet-the-american-jobs-plan/.~~
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~~The remainder of this section discusses the American Jobs Plan, the debates surrounding the~~
~~infrastructure discussions, and the potential impacts such a proposal might have on the economy~~
~~in the short and long run.~~
~~Proposed Size and Financing~~
~~As original y outlined by the Biden Administration, the American Jobs Plan would cost $2.25~~
~~tril ion over 10 years.55 The Administration is currently negotiating with Congress on~~
~~infrastructure legislation. The size and method of financing of any resulting legislation is, as of~~
~~this writing, unclear. As such, the remainder of this section wil focus on the original American~~
~~Jobs Plan proposal.~~
~~President Biden has proposed paying for the American Jobs Plan with an increase in the corporate~~
~~tax rate from 21% to 28%.56 According to the Administration, this would make the American Jobs~~
~~Plan deficit neutral over 15 years,57 although most of the spending would be done within 10~~
~~years. According to the Committee for a Responsible Federal Budget (a Washington, DC, think~~
~~tank), this would result in a 10-year deficit of $900 bil ion.58 Financial services company~~
~~Moody’s Analytics came up with a slightly lower estimate of a 10-year deficit of $850 bil ion,~~
~~although when accounting for the projected economic benefits of the plan, Moody’s predicts an~~
~~even lower $625 bil ion deficit over 10 years.59~~
~~Some Members of Congress have reportedly suggested alternative measures for funding~~
~~government investment in the form of funding offsets, such as repurposing existing approved~~
~~funds, including user fees on select items, and requiring contributions from state and local~~
~~governments.60~~
~~Potential Impacts~~
~~The American Jobs Plan includes spending that does not fit into traditional definitions of~~
infrastructure. It therefore may be particularly chal enging to judge the potential impacts of the
~~plan, as it may cause different impacts than past infrastructure bil s did. This section wil discuss~~
~~some research and projections on the impact the American Jobs Plan might have on employment~~
~~and output.~~
~~The Moody’s Analytics report about the potential economic impact61 of the American Jobs Plan~~
~~uses a one-year multiplier of around 1.5 for the traditional infrastructure investment included in~~

~~55 T he White House, “Fact Sheet: T he American Jobs Plan.”~~
~~56 Jim T ankersley and Emily Cochrane, “Biden Wants to Pay for Infrastructure Plan with 15 Years of Corporate~~
~~T axes,” New York Times, April 22, 2021, https://www.nytimes.com/2021/03/30/business/economy/biden-~~
~~infrastructure-taxes.html.~~
~~57 T he White House, “ Fact Sheet: T he American Jobs Plan.”~~
~~58 Committee for a Responsible Federal Budget, “ What’s in President Biden’s American Jobs Plan?,” April 2, 2021,~~
~~https://www.crfb.org/blogs/whats-president -bidens-american-jobs-plan.~~
~~59 Mark Zandi and Bernard Yaros, The Macroeconomic Consequences of the American Jobs Plan, Moody’s Analytics,~~
~~April 2021, https://www.economy.com/getlocal?q=C228A0FF-2701-47B2-ADE0-D158B5866251&app=download.~~
60Infrastructure Investment and Jobs Act The Infrastructure Investment and Jobs Act (P.L. 117-58) was signed into law on November 15, 2021. It mandates new investment in transportation, broadband, electric grid and power, and water, among others. Transportation is one of the largest categories of investment and includes spending on roads and bridges, public transit, and Amtrak.54 The act authorizes $550 billion in new infrastructure spending over the next five years.55 According to CBO, the Infrastructure Investment and Jobs Act will increase 2021-2031 deficits by $256 billion. Over the same time period, it would decrease direct spending by $110 billion, increase revenues by $50 billion, and increase discretionary spending by $415 billion.56 The law was passed on a bipartisan basis, with 50 Senate Democrats, 215 House Democrats, 19 Senate Republicans, and 13 House Republicans voting in favor. Proponents of the law argue that the increased investment in infrastructure is both necessary and economically sound.57 Some critics 54 See, for example, Kevin Major, Patrick Miller, and Juan Reyes III, “Breaking Down the Infrastructure Investment and Jobs Act,” JDSupra, November 10, 2021, https://www.jdsupra.com/legalnews/breaking-down-the-infrastructure-1466732/; and Adie Tomer et al., America Has an Infrastructure Bill. What Happens Next? Brookings Institution, November 9, 2021, https://www.brookings.edu/blog/the-avenue/2021/11/09/america-has-an-infrastructure-bill-what-happens-next. 55 The White House, Updated Fact Sheet: Bipartisan Infrastructure Investment and Jobs Act, August 2, 2021, https://www.whitehouse.gov/briefing-room/statements-releases/2021/08/02/updated-fact-sheet-bipartisan-infrastructure-investment-and-jobs-act/. 56 CBO, Senate Amendment 2137 to H.R. 3684, the Infrastructure Investment and Jobs Act, Cost Estimate, August 5, 2021, https://www.cbo.gov/publication/57406. 57 For example, see Sen. Rob Portman, “Senators’ Statement on Historic Infrastructure Investment and Jobs Act Being signed into Law,” press release, November 15, 2021, https://www.portman.senate.gov/newsroom/press-releases/senators-statement-historic-infrastructure-investment-and-jobs-act-being; and Rep. Peter Defazio, “Thanks to President Biden, Infrastructure Is Bipartisan Again—It Needs to Stay That Way,” The Hill, November 23, 2021, Congressional Research Service 14 link to page 18 Infrastructure and the Economy of the law argue that the amount of the spending is neither necessary nor advisable given the already relatively high federal deficit.58 Other critics have argued that there is not enough spending in the law and that it will not sufficiently address the nation’s infrastructure needs.59 Regarding the bills potential economic impact, many economists agree that the Infrastructure Investment and Jobs Act will result in some long-term gains, although the magnitude of those gains is a matter of debate.60 One prominent analysis of the macroeconomic consequences of the law, performed by economists at Moody’s Analytics,61 found that, when compared with a baseline scenario and other scenarios that would include additional legislation, the effects on growth over the 2021-2013 period are small but positive (see Figure 4). Figure 4. Projected Impact of the Infrastructure Investment and Jobs Act, 2020-2031 Source: Mark Zandi and Bernard Yaros, Macroeconomic Consequences of the Infrastructure Investment and Jobs Act and Build Back Better Framework, November 4, 2021, https://www.moodysanalytics.com/-/media/article/2021/macroeconomic-consequences-of-the-infrastructure-investment-and-jobs-act-and-build-back-better-framework.pdf. Notes: Real GDP measured using 2012 dol ars. https://thehill.com/blogs/congress-blog/politics/582858-thanks-to-president-biden-infrastructure-is-bipartisan-again-it. 58 Sen. Pat Toomey, “Toomey Opposes ‘Too Expensive, Too Expansive, and Too Unpaid For’ Infrastructure Proposal,” press release, August 11, 2021, https://www.toomey.senate.gov/newsroom/press-releases/toomey-opposes-too-expensive-too-expansive-and-too-unpaid-for-infrastructure-proposal. 59 Rachel Looker and Amy Nakamura, “Who Are the 6 House Democrats Who Voted Against the Infrastructure Bill?,” USA Today, November 8, 2021, https://www.usatoday.com/story/news/politics/2021/11/08/aoc-ilhan-omar-democrats-who-voted-no-infrastructure-bill/6339739001/. 60 Josh Mitchell, “Infrastructure Law Seen Having Small, Positive Impact on Growth,” Wall Street Journal, November 6, 2021, https://www.wsj.com/articles/infrastructure-law-seen-having-small-positive-impact-on-growth-11636191000?mod=djemCentralBanksPro&tpl=cb. 61 Mark Zandi and Bernard Yaros, Macroeconomic Consequences of the Infrastructure Investment and Jobs Act amd Build Back Better Framework, November 4, 2021, https://www.moodysanalytics.com/-/media/article/2021/macroeconomic-consequences-of-the-infrastructure-investment-and-jobs-act-and-build-back-better-framework.pdf. Congressional Research Service 15 Infrastructure and the Economy Author Information Lida R. Weinstock Analyst in Macroeconomic Policy Acknowledgments ~~For example, see Politico, “Bipartisan Infrastructure Plan,” p. 2; David Morgan, “Republicans Unveil $568 Bln~~
~~Infrastructure Package to Counter Biden,” Reuters, April 22, 2021, https://www.reuters.com/world/us/republicans-~~
~~unveil-568-bln-infrastructure-package-counter-bidens-23-trillion-2021-04-22/; and Kelsey Snell, “ Countering Biden,~~
~~Senate Republicans Unveil Smaller $568 Billion Infrastructure Plan,” NPR, April 22, 2021, https://www.npr.org/2021/~~
~~04/22/989841527/countering-biden-senate-republicans-unveil-smaller-568-billion-infrastructure-pl.~~
~~61 T he potential impacts of this plan are less clear in the long run. PWBM predicts that the spending provisions of the~~
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~~Infrastructure and the Economy~~

~~the plan. Over the next 10 years, Moody’s finds that the American Jobs Plan would increase GDP~~
~~and employment (see Figure 4).62~~
~~Figure 4. Projected Impact of American Jobs Plan, 2020-2030~~

Source: Mark Zandi and Bernard Yaros, The Macroeconomic Consequences of the American Jobs Plan, Moody’s
~~Analytics, April 2021, https://www.economy.com/getlocal?q=C228A0FF-2701-47B2-ADE0-D158B5866251&app=~~
~~download.~~
~~Debates~~
~~The American Jobs Plan sparked significant debate surrounding the definition of infrastructure.~~
~~The debate is centered upon whether, and the extent to which, various aspects of the plan directly~~
~~or indirectly improve the productive capacity of the U.S. economy, since the research surveyed~~
~~above indicates that infrastructure general y has a more positive effect on the economy than other~~
~~types of government spending. The American Jobs Plan includes provisions that would not~~
~~necessarily fal under the “core infrastructure” category and, some have argued, would not fal~~
~~under the umbrel a of infrastructure at al , such as improving the stock of affordable housing or~~
~~expanding elderly and disabled access to care.63 The Biden Administration has argued, for~~
~~example, that increasing elderly care would al ow adults who were previously caregivers to join~~
~~the labor force and increase production, thereby making elderly care a component of~~

~~American Jobs Plan, absent the increase in corporate taxes, would decrease the level of GDP by 0.33% by 2050. In the~~
~~scenario in which the American Jobs Plan is accompanied by the proposed increase in taxes, PWBM predicts GDP~~
~~would decrease by 0.8% by 2050. Other analyses are more optimistic, such as Oxford Economics, which pre dicts that~~
~~long-run potential output will increase by 0.1% owing to the American Jobs Plan and that it will create 2 million~~
~~additional jobs by the end of 2024. See PWBM, “ President Biden’s $2.7 T rillion American Jobs Plan: Budgetary and~~
~~Macroeconomic Effects,” April 7, 2021, https://budgetmodel.wharton.upenn.edu/issues/2021/4/7/president -biden-~~
~~american-jobs-plan-effects; and Oxford Economics, “ Biden’s American Jobs Plan Will Provide a Structural Lift ,” April~~
~~10, 2021, http://blog.oxfordeconomics.com/content/bidens-american-jobs-plan-will-provide-a-structural-lift.~~
~~62 Zandi and Yaros, The Macroeconomic Consequences of the American Jobs Plan .~~
~~63 Jim T ankersley and Jeanna Smialek, “Biden Plan Spurs Fight over What ‘Infrastructure’ Really Means,”~~ ~~New York~~
~~Tim es, April 5, 2021, nytimes.com/2021/04/05/business/economy/biden -infrastructure.html.~~
~~Congressional Research Service~~

16

~~Infrastructure and the Economy~~

~~infrastructure.64 Detractors argue that such a proposal is social spending and would not actual y~~
~~increase productivity.~~
~~There has also been debate surrounding the timing, size, and financing of the American Jobs Plan.~~
~~Certain economists and policymakers are concerned about the size of the plan, specifical y in~~
~~light of the spending in the recently passed American Rescue Plan Act (P.L. 117-2), and are~~
~~concerned that the plan would cause or contribute to an overheating economy and inflation.65~~
~~Some Members of Congress are specifical y opposed to the proposed tax increase, fearing that~~
~~increasing taxes would cause the economy to slow in its recovery from the pandemic.66 The~~
~~Biden Administration counters that the plan would create jobs in the short term and, if passed~~
~~alongside the proposed tax increase, be fully paid for within 15 years and actual y reduce deficits~~
~~in the years thereafter.67~~

~~Author Information~~

~~Lida R. Weinstock~~

~~Analyst in Macroeconomic Policy~~

~~Acknowledgments~~
This report has been adapted from a report authored by Jeffrey Stupak, former CRS Analyst in This report has been adapted from a report authored by Jeffrey Stupak, former CRS Analyst in
Macroeconomic Policy. Macroeconomic Policy.

Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan
shared staff to congressional committees and Members of Congress. It operates solely at the behest of and shared staff to congressional committees and Members of Congress. It operates solely at the behest of and
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~~64 Andrea Shalal, “T op White House Economist Defends ‘Care Economy’ as Infrastructure,” Reuters, April 6, 2021,~~
~~https://www.reuters.com/article/us-usa-biden-infrastructure-care/top-white-house-economist -defends-care-economy-as-~~
~~infrastructure-idUSKBN2BU02A.~~
~~65 Senator Pat T oomey, “Toomey Statement on Biden’s Massive Spend and T ax Binge,” press release, March 31, 2021,~~
~~https://www.toomey.senate.gov/newsroom/press-releases/toomey-statement-on-bidens-massive-spend-and-tax-binge.~~
~~66 Senate Committee on Finance, “Crapo: Raising T axes Incredibly Misguided,” press release, March 31, 2021,~~
~~https://www.finance.senate.gov/ranking-members-news/crapo-raising-taxes-incredibly-misguided.~~
~~67 T he White House, “ Fact Sheet: T he American Jobs Plan.”~~
~~Congressional Research Service~~
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17 Congressional Research Service R46826 · VERSION 5 · UPDATED 16