TORONTO — Infrastructure spending is not an effective policy for stimulating the economy during a recession, argues a new study by the Fraser Institute.
“Infrastructure projects have very long timelines, and by the time shovels hit the ground on a new bridge, highway or subway tunnel, the recession is usually over and the economic recovery has already begun,” said Finn Poschmann, resident scholar at the Fraser Institute and author of Fiscal Policy and Recessions: The Role of Public Infrastructure Spending.
First, the government must write and pass stimulus legislation, then work with the provinces and municipalities to identify projects, which require permit and zoning approvals, Poschmann said.
And depending on the size of the infrastructure project, it may also require an environmental assessment before contractors are selected and materials sourced.
“Crucially, by the time actual construction starts, the recession will be over and the economic recovery will likely be underway. This means the infrastructure meant to stimulate the economy will now compete with private sector investment and potentially slow the recovery,” the release stated.
In addition, the report stated, the federal money substitutes for planned provincial or local spending.
“The evidence is clear — public infrastructure spending doesn’t work effectively to stimulate the economy during a recession, and policymakers should be aware of that reality when the next recession hits,” Poschmann said.