DP3159 | Fixing Swiss Potholes: The Importance of Improvements

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The objective of this note is to document the importance of improvements relative to the other forms of capital spending and to determine whether improvements have similar cyclical properties as maintenance and repair. To shed some light on these issues, we look at a unique data set on Swiss road spending. The data on road spending are broken down into new roads, road improvements, and road maintenance and repair (hereafter road maintenance). The long-run evidence finds that road improvement is larger in size than road maintenance and exhibits similar dynamic properties as road maintenance. This result strengthens the view of McGratten and Schmitz (1999) that countercyclical spending of firms on maintenance (and on improvement) of existing capital is too large to be ignored.