The Political Economy of Transport Infrastructure Funds
Andreas Kopp, European Conference of Ministers of Transport, INT
The paper shows how the isolation of the financing of transport infrastructure from the political processes of budget determination can lead to welfare gains for users/taxpayers and lobbying parties.
Historically, infrastructure funds have been strongly debated for infrastructure policies in developing countries. With fiscal austerity and tighter budgets, off government budget cost recovery mechanisms raise interest for the infrastructure policies of rich countries as well. The paper will explore the economic and political rational for infrastructure funds. It will argue that infrastructure funds may be considered to be a mechanism to avoid failures to coordinate between different interests in transport infrastructure policies, leading to distorted infrastructure policies and a waste of resources by political players.
Infrastructure policy without politics
In a first part the paper will set the classical public finance arguments on optimal capacity choice and finance of indivisible but congestible goods like infrastructure facilities. It will be shown that in this idealized world, where governments perfectly aggregate the preferences of the infrastructure users and taxpayers, a centralized budget process and a decentralized quasi-market for infrastructure services (like an infrastructure fund) lead to identical outcomes. It will be shown that this outcome depends on assumptions on the feasibility of counterfactual tax and transfer policies.
In practice, substantial differences are observed between planned expenditure levels for transport infrastructure, for new investment and particular for maintenance. A dominant explanation of this gap is the weakness of transport policy relative to other portfolios in the policy decision making process.
Lobbying and infrastructure policies
Isolating the influence of special interest groups in the political process, the paper will show that, if governments seek campaign contributions and a high share of votes of the population, the lobbying activities lead to a political outcome that is identical to the infrastructure policy in the absence of lobbying activities. That is, the lobbying parties are caught in a prisoners? dilemma from which they would want to withdraw could they do so unilaterally. Wasteful but inconsequential lobbying continues, however, as the lobbying parties fail to coordinate to withdraw from influencing the outcomes of the budget process. The existence of infrastructure funds would enable the society to save the resources wasted in rent seeking activities.
Lobbying and the entry of citizen-candidates
In the context of a mobile party structure, where citizen-candidates with own policy profiles might enter party politics, lobbying might lead to a reaction of candidatures for political offices that lead even to a worse outcome for the lobbying contenders than in the case of an agreed abstention from lobbying. In this case, a coordination not to lobby between special interest groups would lead to the avoidance of resources spent in rent seeking activities, a distortion of infrastructure investment and maintenance levels from inducing countervailing party positions and a loss of income of the lobbying parties.
Benefits transport infrastructure funds
The paper will argue that establishing transport infrastructure funds can be considered a solution to the distorting influences resulting from lobbying and induced reactions in the party system on infrastructure policy. An initiative to establish infrastructure funds could enable lobbying parties to escape the prisoners? dilemma of being unable to coordinate.
Transport infrastructure funds could
? avoid suboptimal infrastructure investment and maintenance levels due to the interaction of lobbying parties and party reactions,
? avoid the waste of resources resulting from rent seeking activities, and
? avoid welfare losses of special interest groups resulting from the failure to coordinate on renouncing to lobbying activities.
Association for European Transport