Increased government spending on infrastructure has been proposed yet again to revive the economy from the government-imposed recession. The latest call for the states to spend another $40 billion has come from Reserve Bank Governor Philip Lowe and is supported by Prime Minister Scott Morrison.
However, there are good reasons to be sceptical about the macroeconomic benefits of ramping up government spending on infrastructure on this scale, especially if it has not been subjected to rigorous cost-benefit analysis on a project-by-project basis.
The key rationale for advocating more infrastructure spending is that it will create jobs and hence reduce the unacceptably high...
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