STAREBEI. Intergenerational redistributive effects of transport infrastructure financing

 

Client: European Investment Bank
Dates: 2015-2016

Final report
5th Annual Meeting of Knowledge programme

Major transport projects are appraised mostly through cost-benefit analysis. In practice, though, decision-making takes into account many other aspects that are more or less political.

When properly defined, they may be introduced in the decision process through multi-criteria analysis. Most important among these aspects are redistributive effects, which are, typically, associated to territorial, social and environmental considerations. There are, however, some important redistribution effects that have never been properly analysed and quantified until now. They are related to the evolution, throughout the projects’ lifespan, of the costs and benefits of the project affecting the society “of each moment” (here called “annual generation”), and of the financing structure adopted, which determines who the final payers will be: either users, through tolls or tariffs for the use of the project, and/or taxpayers.

Relating the actual payment for the investment to the net benefits occurring to the users and citizens in general for each annual generation, it is possible to ascertain if there is a balanced intergenerational distribution of burdens and benefits over the whole project lifecycle, i.e. whether a project is sustainable and fair from an intergenerational perspective.

The study supported by the STAREBEI programme has allowed developing a proper quantitative model for “intergenerational redistribution effects”. The IREM, a model based on a survey-based definition of the “annual generation”, includes an ad-hoc analytical procedure for the establishment of indicators of these effects allowing their comparison among different projects. Such indicators could provide a valuable input into the decision making process and, in particular, in the adoption of a financing structure that represents an adequate share of the actual investment expenditure among those who will benefit from the project.

The IREM model has been applied to a substantial set of projects, some of them financed by the EIB. The results of the econometric analysis indicate that the intergenerational redistribution effects of transport infrastructure depend on the funding typology, which appears to vary by country and type of project management