economic activity distribution can be improved by optimizing public infrastructure investment. The counterfactual simulations indicate that improving spatial allocations of power infrastructure alone could increase consumer welfare by 7.5 percent and average income by 3.4 percent. In turn, improving spatial allocations of road infrastructure investments could increase consumer welfare by 11 percent and average income by 10.7 percent. We also find that improvements in the quality of the electrical grid and public roads accelerate structural transformation by increasing employment shares in both manufacturing and services and reducing the employment share in the primary sector.

We then ask if the two types of public infrastructure complement each other in the process of economic development. On the one hand, concentrating infrastructure investments in space can be beneficial if there is some degree of complementarity between them. On the other, doing so could increase the degree of spatial inequality (Kanbur and Venables, 2005, Chapters 5 and 8). Estimating the complementarity degree is, therefore, of first-order importance from the policy-making perspective. We find that coordinating the optimal investment in both types of infrastructure (roads and electricity) improves welfare even when there is no fiscal alignment across line ministries that have fixed separate budgets. In particular, gains in consumer welfare and average income due to this complementarity equal 1.26 and 2.2 percentage points, respectively.

Third, we observe even greater welfare gains when fiscal aspects are introduced, allowing for a joint infrastructure budget and coordinating the _spatial_ allocation of electric power and transportation networks. Allowing for _fiscal_ complementarities increases consumer welfare and average income by an additional 2.3 and 5.9 percentage points, respectively. Even though our model predicts that areas with a higher quality of electricity should also have higherquality roads, spatial inequality also matters since the optimal allocation ensures a minimum quality for all regions.

Finally, we explore the political economy considerations of why the observed investment allocations are not fully in line with the model optimal allocations. Although many factors could influence these deviations, we find a positive relationship between overinvestment (relative to the optimal allocations predicted by the model) and increased local support for the incumbent authority. We regress the log deviations between the infrastructure investment in the data and the one predicted by the model on the differences in votes for the incumbent Workers’ Party between the 2010 and 2002 elections. Since the Workers’ Party won the presidential elections in Brazil in 2002, 2006, and 2010, our explanatory variable measures increased support for the incumbent at the microregion level. Our results suggest that an increase of 1 percentage point in support for the incumbent is associated with an increase in the quality of electricity by 0.03 - 0.05 percentage points and the quality of roads by 0.015 - 0.02 percentage points.

Our study is related to several recent papers that have explored the interactions between different types of infrastructure and economic development. Moneke (2019) studies how big 3