Does high-speed rail generate spillovers on local budgets?

Abstract

High-Speed Rail (HSR) infrastructure is costly and requires high investment during the construction and operation periods, which is mainly financed with public funds. This economic effort is seldom set off, which leads to subsidies with the money collected from public debt growth or tax pressure increases. The question that immediately emerges is whether the entrance of this new infrastructure generates economic spillovers at the local level and, consequently, improves local public budgets. To solve this question we use local data on economic activity, municipalities' characteristics and local financial data in Spain for the past decade (2001-2010). Our estimations by difference-in-difference analysis and using spatial data yield a general conclusion: when HSR comes to town, both local revenues and the local fiscal gap improve by mean 10% and 16%, respectively. These improvements primarily affect municipalities located within 5. km of an HSR station.