Road to Ruin? A Spatial Analysis of State Highway Spending DONALD BRUCE, DEBORAH A. CARROLL, JOHN A. DESKINS, and JONATHAN C. RORK Do states engage in infrastructure expenditure competition to attract new economic activity? Economic theory is inconclusive on the matter. States might respond to increased infrastructure spending in competitor states by increasing their own infrastructure spending. Conversely, states may decrease spending in the presence of positive spillovers from competitor states’ infrastructure investment. Using spatial econometric techniques and focusing specifically on highway spending, we demonstrate that states expend less on highways when spending in neighboring states increases. We explore this possibility further by modeling state personal income growth as a function of own-state and neighbor- state highway spending. Our findings suggest positive spillovers influence interstate relationships for highway spending rather than race-to-the-top competition for economic activity. Donald Bruce is an Associate Professor in the Center for Business and Economic Research (CBER) and the Department of Economics at the University of Tennessee, Knoxville. He specializes in policy research, focusing primarily on the economic and behavioral effects of tax policies. Recent work has also considered the effects of tax policies on small business activity, the volatility of state revenue sources, and the sales tax implications of electronic commerce. He can be reached at dbruce@utk.edu. Deborah A. Carroll is an Assistant Professor in the Department of Public Administration within the School of Public and International Affairs at The University of Georgia. With a specialization in public financial management, her research focuses on fiscal policy issues pertaining to state and local governments with an emphasis on taxation, revenue diversification, and urban economic development. She can be reached at dcarroll@uga.edu. John A. Deskins is an Assistant Professor in the Economics and Finance Department at Creighton Uni- versity. His research is focused primarily on the behavioral effects of state tax policy. Recent research topics include the effects of state tax policy on corporate tax planning activity, the effect of small business activity on state economic growth, and the effect of state tax policy on entrepreneurship. He can be reached at johndeskins@creighton.edu. Jonathan C. Rork is an Assistant Professor in the Department of Economics within the Andrew Young School of Policy Studies at Georgia State University. His research interests are in issues of interjurisdic- tional competition, the economics of state gaming, and the economics of the elderly. He can be reached at jrork@gsu.edu. Public Budgeting & Finance / Winter 2007 66