Paying it back: An examination of the fiscal returns of public infrastructure investment

The social and economic benefits of public infrastructure – our hospitals, schools, roads, water networks and more – are clear. But while all infrastructure needs to be paid for, it’s not always clear how it’s paid for.

This research explores whether new public infrastructure investment can generate revenue to pay back the cost of the investment.

Key findings

• Project quality is the most important factor for determining whether new infrastructure can generate enough revenue to pay for itself. Projects that are cost-effective to build and which serve more users or beneficiaries are more likely to generate positive fiscal returns. Conversely, expensive projects that serve relatively few users will struggle to pay back their up-front costs. This pattern is consistent across different types of projects with different funding tools.
• Our analysis suggests that cost-benefit analysis can help to identify projects that are likely to have higher returns. Projects with higher benefit-cost ratios tend to also have higher financial returns. Likewise, financial returns from local government growth infrastructure are higher when it serves more new private investment.
• Spending a large amount of money up-front does not necessarily mean larger returns. A better approach may be to invest incrementally, expanding networks gradually over time in response to proven demand.
• When we have quality projects that serve demand in a cost-effective way, revenue tools can play an important role in determining how much new revenue we can bring in.