Tuesday, October 25, 2011

pork-barrel economics

The actual title of a research paper, published in the journal Economics Letters, is: Can national infrastructure spending reduce local unemployment? Evidence from an Australian roads program.

Abstract: We examine the effect of a federally-funded local infrastructure spending program on local unemployment rates. To address the likely funding endogeneity problem, we exploit variation in spending due to pork-barreling, and find that higher government expenditure on roads substantially reduces local unemployment.

Highlights ► We examine how federally-funded infrastructure spending affects local unemployment. ► We address funding endogeneity using pork-barrel spending in a road funding program. ► More road spending in a district is associated with a fall in local unemployment. ► Federally-funded infrastructure programs can boost local employment.

The research used a pork-barreled Federal roads infrastructure program in 2001 to analyse the different outcomes between comparable regions where some received funding and some didn't. This enabled an estimation of the positive effect of infrastructure spending on a local economy, as reported by Peter Martin.

This is a similar methodology to another recent study based on changes in local infrastructure spending in Italy caused by mafia investigations involving corrupt politicians:
Organised crime is a nightmare in Italy but it is a blessing for economists because it causes significant changes in government expenditures that are completely unrelated to the current economic environment. If a politician is arrested because of his connections to the mafia, all public investments in infrastructure and construction are put on hold immediately until the investigators have checked if the mafia had been able to channel money into their pockets.
Loose Change refrains from any direct comparison between pork-barreled Federal politics and the corrupt politics of Italy!  

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