Effects of Physical Infrastructure Spending on the Economy and the Budget under Two Illustrative Scenarios V. 1

1 Effects of Physical Infrastructure Spending on the Economy and the Budget under Two Illustrative Scenarios 1 (August 6, 2021)

handle is hein.congrec/cboeffpise0001 and id is 1 raw text is: Summary
Increases in physical infrastructure spending would
boost private-sector productivity in the coming decades,
contributing to economic growth that could lower the
budgetary cost of that spending. To study such increases,
the Congressional Budget Office examined two illustra-
tive scenarios that would boost federal funding for a mix
of types of physical infrastructure by $500 billion over
10 years. (Those funds would not all be spent within
10 years.) The same broad mix of physical capital is
funded in both scenarios, neither of which corresponds to
a specific legislative proposal. CBO compared outcomes
under each scenario with those from its projections for the
economy and the budget if current laws governing taxes
and spending generally remained unchanged.
Budgetary Effects of Macroeconomic Changes
In this dynamic analysis, CBO finds that the effects of
macroeconomic changes on the federal budget would
depend on how additional infrastructure spending was
financed and the time period considered.
Under Scenario 1, which is deficit-neutral before
accounting for macroeconomic changes, infrastructure
is financed by reducing the government's noninvestment
purchases.
In present value, which expresses the flows of current
and future income or payments in terms of their
value at a single point in time, the budgetary effects
over 30 years stemming from macroeconomic changes
would reduce the net cost of funding $500 billion of
additional infrastructure by approximately one-third.
From fiscal years 2022 to 2031, the deficit would decrease
by $11 billion because of the macroeconomic changes.
Under Scenario 2, infrastructure is financed by increas-
ing federal borrowing.

- In present value, the budgetary effects over 30 years
stemming from macroeconomic changes would
increase the net cost of funding $500 billion
of additional infrastructure by approximately
one-fourth.
From fiscal years 2022 to 2031, the effects of
macroeconomic changes would decrease the deficit by
$2 billion (not including the additional outlays for
infrastructure).
There are many other financing possibilities, including
combinations of those two. If physical infrastructure
was financed with a combination of reductions in the
government's noninvestment purchases and increases in
federal borrowing, the result would roughly equal the
weighted average of the estimates under Scenarios 1 and
2. For example, if the financing was one-half reductions
in noninvestment purchases and one-half increases in
federal borrowing, then the estimates under Scenarios 1
and 2 would be roughly equally weighted.
In present value, the budgetary effects over 30
years stemming from the macroeconomic changes
would decrease the net cost of funding $500 billion
of additional infrastructure by approximately
one-twentieth.1
From fiscal years 2022 to 2031, the effects of
macroeconomic changes would decrease the deficit by
$6 billion (not including the additional outlays for
infrastructure).
To assess how the net cost of funding infrastructure
would be altered by macroeconomic changes occurring
1. CBO estimates that there would be no net budgetary effects over
30 years stemming from macroeconomic changes if the financing
was roughly 45 percent reductions in noninvestment purchases
and roughly 55 percent increases in federal borrowing.

Note: Numbers in the text and tables may not add up to totals because of rounding.

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