Highway Spending and Induced Vehicle Emissions : Evidence from the US States

This paper investigates the impact of state and local government highway spending on vehicle emissions. A theoretical framework is constructed to show the effect of government highway spending on passenger and freight vehicle emissions and decompose the effect into a rebound effect, an induced demand effect and an interaction effect. We then develop an empirical strategy and combine state-level data in the US to test the induced CO2 emissions by government highway spending. We find that there are positive and significant total effects of government highway spending on passenger and freight vehicle emissions. The magnitude of these effects, however, significantly differs from one another, as the elasticity of passenger vehicle emissions to government highway spending is only one fourth of that in the freight sector. The difference can be plausibly explained by the rebound effect and the interaction effect. We argue that certain policies, such as government spending on urban roads and freight corridors, should account for the disparity in induced emissions between passenger and freight vehicles