U.S. state fiscal constraints and railroad development through the nineteenth century

Throughout the nineteenth century, U.S. states developed extensive fiscal constraints meant to limit public investment in infrastructure projects, especially railroad aid. These limitations came as a direct result of perceived malinvestment and mishandling of public funds in earlier infrastructure projects that were pursued to promote state and local economic development. However, an important yet under-researched question is to what extent these constraints may have helped or hindered the development of public infrastructure across these states. Overall, the evidence would suggest that in general, more binding constraints that limited the ability of state and local governments to invest in these projects actually led to an increase in railroad mileage. These findings provide important insights both regarding the development of railroads throughout the U.S. and offer a potential counterfactual to some European and Scandinavian experiences, which saw extensive public aid and in some instances nationalisation of railroad lines.