Volatile Earmarked Revenues and State Highway Expenditures in the United States

Nguyen-Hoang, P.
Nov-07-2014

Abstract

Heavy use of transportation-related revenues earmarked for highways is one of the distinguishing characteristics of state highway finance in the United States. This is the first study to examine the potentially differential effects of earmarked revenue volatility on state highway expenditures. Using panel data for over 30 years, I found in both OLS and 2SLS estimations that state highway expenditures did not respond to upward cyclical deviations in earmarked revenues. Also, a one-percentage-point downward deviation of earmarked revenues from trend was associated with a decline of between 0.24 and 0.32 % in state highway expenditures. This finding has potential policy implications for state budgets and efforts to maintain or expand transportation infrastructure and, by extension, efforts to spur economic growth.