Road to Ruin? A Spatial Analysis of State Highway Spending

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.     

Procyclical government spending: a public choice analysis

Procyclical government spending occurs when government expenditures increase at a faster rate than income in an economic upturn but fall at a faster rate in a recession. Voracity effects occur when competition for increased spending proves more effective as national income increases. Public choice theory can be applied to describe the distribution of fiscal power across different tiers of government to shed insight into competition for intergovernmental transfers. Politicians have electoral incentives to press for intergovernmental transfers but they also have electoral incentives to signal their ability to manage the economy. With this mix of incentives, the prediction is that intergovernmental transfers will be procyclical and that sub-central government spending will be more procyclical than central government spending. Public choice analysis of pressure for increased public spending predicts a specific pattern of cyclical government spending. This pattern can be observed when analyzing government expenditures in 20 OECD countries between 1995 and 2006.     

On the distribution of federal taxes and expenditures,and the new war between the states

As federal government expenditures have grown, there has been an increasing awareness of the distribution of taxes and expenditures across states. States in the Northeast have claimed that sunbelt states have been getting more than their fair share of federal spending, with the sunbelt states denying the charge. A theory of political coalitions is developed to explain why the sunbelt should be unable to receive differentially high expenditures, although the sunbelt may pay less than a proportional amount in taxes because of its relatively low income. An empirical test shows that the data are in agreement with this theory.     

Government spending and happiness of the population: additional evidence from large cross-country samples

This study uses large cross-country samples and several measures of happiness, income, and government spending to revisit the relation between government spending and the population’s happiness. The main finding is that increased government spending does not lower happiness in broad cross-country contexts. Much caution is, therefore, urged in interpreting the negative association between government spending and happiness reported in some earlier studies and the suggested policy implications. Three additional points are noted. First, the weight of the evidence suggests a significant positive association between income and happiness. Second, estimates based on income and government-share data from Penn World Table and the new International Comparison Program show similar patterns. Third, the parameter for generalized trust seems fragile.     

Government Size and Unemployment: Evidence from Industrial Countries

Using data from 19 industrial countries for the period 1985 to 2002, this paper analyzes how the size of the government sector affects unemployment. Controlling for the impact of the business cycle as well as for the impact of all major labor market institutions and unobserved country effects, we find that a large government sector is likely to increase unemployment. It appears to have a particularly detrimental effect on women and the low skilled and to substantially increase long-term unemployment. It seems that dominant stateowned enterprises, a large share of public investment in total investment as well as high top marginal income tax rates and low income threshold levels at which they apply are particularly detrimental.     

Partisan politics,welfare states,and environmental policy outputs in the OECD countries, 1975–2005

Building on the burgeoning literature on the association between the welfare state and the environmental state, this study empirically examines how the politics of the former has affected the development of the latter. We suggest that the size of the welfare state shapes the calculus of environmental policy costs by partisan governments. A generous welfare state lowers the costs perceived by the left‐wing government, as large redistributive spending allows the government to mitigate the adverse impact of the new environmental policy on its core supporters, industrial workers. A generous welfare state also implies diminished marginal political returns from additional welfare commitment by the left‐wing government, which lowers the opportunity costs of environmental policy expansion. To the contrary, because of lower overall regulatory and taxation pressure, a small welfare state reduces the costs of environmental policy expansion as perceived by a right‐wing government. Our theoretical narrative is supported in a dynamic panel data analysis of environmental policy outputs in 25 Organisation for Economic Co‐operation and Development member states during the period 1975–2005.     

Demographic structure and the political economy of public education

This article examines the relationship between demographic structure and the level of government spending on K-12 education. Panel data for the states of the United States over the 1960-1990 period suggests that an increase in the fraction of elderly residents in a jurisdiction is associated with a significant reduction in per-child educational spending. This reduction is particularly large when the elderly residents and the school-age population are from different racial groups. Variation in the size of the school-age population does not result in proportionate changes in education spending, thus, students in states with larger school-age populations receive lower per-student spending than those in states with smaller numbers of potential students. These results provide support for models of generational competition in the allocation of public sector resources. They also suggest that the effect of cohort size on government-mediated transfers must be considered in analyzing how cohort size affects economic well-being.     

Social mobility and the demand for public consumption expenditures

The collective choice of public consumption expenditure is reconsidered when voters are socially mobile. In accordance with previous work on social mobility and political economics, the analysis concerns a class of mobility processes that induce mappings from initial income to expected future income that are monotonically increasing and concave. The paper abstracts from the explicitly redistributive role of government and concentrates on public consumption which is modeled as a classical public good. In equilibrium, provision is sensitive to the degree of social mobility, theoretically linking social mobility to public consumption. Further, empirical puzzles about the impact of voting franchise extensions on the growth of government spending are addressed within the context of social mobility.     

Charitable giving in the German welfare state: fiscal incentives and crowding out

There are two ways that government activities influence private charitable giving: (1) government spending on the provision of public goods may cause crowding out of private charitable contributions; and (2) tax incentives may boost private charitable giving. From a sample of German income tax returns, we estimate the elasticity of charitable giving relative to tax incentives, income, and government spending. Using censored quantile regression analysis, we derive results for different points of the underlying distribution of charitable giving. Evaluating overall treasury efficiency, the tax deductibility of charitable donations fosters enough private giving to offset foregone tax revenues.     

Legislative district configurations and fiscal policy in American States

In accordance with the median voter theorem the median legislator is decisive in representative democracy. If the preferences of the median legislator differ from the preferences of the median voter in the polity, fiscal policy choices will predictably diverge from those favored by the median voter. This paper seeks to identify the median district (and therein the preferences driving the median legislator) in American State legislatures. Using economic characteristics of constituents, we find substantial differences between the median district and the statewide median. As the income of the median district rises above the median income of the polity, government expenditures increase. In addition, the degree to which income is skewed across legislative districts affects spending for redistribution programs. Finally, we find that direct democracy procedures, which allow the statewide median voter to check legislative decisions, limit the impact of differences between the district and polity medians.     

Modeling spending preferences & public policy

Understanding preferences over government spending is important for understanding electoral behavior and many other aspects of the political world. Using data on relative preferences for more or less spending across different issue areas, we estimate the general spending preferences of individuals and congressional candidates along a left-right spending dimension. Our modeling approach also allows us to estimate the location of policies on this same dimension, permitting direct comparison of people's spending preferences with where they perceive policy to be. We find that public shows very low levels of polarization on spending preferences, even across characteristics like partisanship, ideology, or income level. The distribution of candidates' spending preferences shows much more sorting by party, but candidates are significantly less polarized than is contemporary voting in Congress.     

Income inequality and economic freedom in the U.S. states

This paper examines the impact of economic freedom on income inequality using cross-sectional data for U.S. states. While previous research has explored this relationship internationally, the results have been conflicting. In addition, while it seems obvious that the large institutional differences across countries will impact income inequality, it isn’t so obvious that the smaller variation in policies among U.S. states can have a measurable impact. Can improvements in income inequality be used as a justification for marginal pro-market policy reforms at the state level, or is this argument applicable only to national-level institutional reforms?     

A new framework for testing the effect of government spending on growth and productivity

Does government spending have a positive or negative effect on economic growth? The results of earlier empirical studies give mixed results. In this study we suggest a new method for testing the effect of different kinds of government expenditure on productivity growth in the private sector. The focus on productivity in the private sector and the use of disaggregated data makes it possible to avoid or mitigate a number of methodological problems. The major conclusions, which are quite robust, are that government transfers, consumption and total outlays have consistently negative effects, while educational expenditure has a positive effect, and government investment has no effect on private productivity growth. The impact is also found to work solely through total factor productivity and not via the marginal productivity of labor and capital.     

Do differences in presidential economic advisers matter?

Using data on members on the Council of Economic Advisors as well as US Treasury secretaries and OMB directors from 1952 through 2005, I investigate the effect of economic advisors’ educational and employment backgrounds on the time series performance of several policy variables. Ivy League advisors appear to raise non-defense government spending, although the size of the impact differs by president. While voter preferences appear to matter for a wider variety of policy variables (changes in federal regulation and marginal tax rates), the share of Ivy League advisors is at least as important as voter preferences in explaining non-defense spending.     

中国财政政策对居民消费需求的非对称效应——基于流动性约束视角下一个新的分析框架

政府运用财政政策扩大居民消费需求,除了需要科学抉择政策取向之外,政策力度和节奏的把握也非常关键。本文在Tagkalakis研究的基础上,首先提出了中国财政政策对居民消费非对称性效应研究的理论框架,然后建立财政政策冲击对居民消费影响的经济计量分析模型,利用1999—2009年中国省际面板数据估计了政府消费冲击、税收冲击以及预期可支配收入对居民消费的影响,并在此基础上进一步考察流动性约束在财政政策冲击对居民消费产生非对称性影响中的作用。实证结果表明财政政策冲击在好与坏两个时期之间对居民消费产生了显著的非对称性凯恩斯效应。其中在坏的时期,政府消费冲击与税收冲击对居民消费影响效应的绝对幅度相对较大。虽然国外理论界认为非对称性效应产生的原因复杂,本文认为在我国财政政策冲击对居民消费产生非对称性效应的原因中,流动性约束起到了非常重要的作用。另外,预期可支配收入因是否面临流动性约束而对不同类型消费者的消费需求影响发生方向性改变。     

Globalization,government spending and taxation in the OECD

Abstract. This article assesses the impact of globalization on welfare state effort in the OECD countries. Globalization is defined in terms of total trade, imports from low wage economies, foreign direct investment, and financial market integration. Welfare effort is analyzed in terms both of public spending (and separately on social service provision and income transfer programs) and taxation (effective rates of capital taxation and the ratio of capital to labor and consumption taxes). Year–to–year increases in total trade and international financial openness in the past three decades have been associated with less government spending. In contrast, integration into global markets has not been associated either with reductions in capital tax rates, or with shifts in the burden of taxation from capital to consumption and labor income. Moreover, countries with greater inflows and outflows of foreign direct investment tend to tax capital more heavily.     

State TANF Spending: Predictors of State Tax Effort to Support Welfare Reform

State spending on Temporary Assistance to Needy Families (TANF) greatly varies. Combined federal and state spending by the states per TANF family or recipient reflects the historic level of state generosity for Aid to Families with Dependent Children (AFDC), the failure of the federal government to set any minimum spending standard for the states, and the failure of the federal government to adjust federal grants for huge changes in state TANF caseloads. Our multivariate analysis shows that state spending for TANF is greatly influenced by the percentage of the state population that is black, the percentage of the state population that is on TANF (especially if a significant percentage of the rolls consist of black recipients), and the economic conditions within the state. Some states spend as much as their economies will allow, while other states spend far below capacity. Despite the very different goals of TANF, state spending is still heavily influenced by their historic approach to AFDC.     

Do budgetary institutions mitigate the common pool problem? New empirical evidence for the EU

We analyze how budgetary institutions affect government budget deficits in member states of the European Union during 1984–2003 employing new indicators provided by Hallerberg et al. (2009). Using panel fixed effects models, we examine whether the impact of budgetary institutions on budget deficits is conditioned by political fragmentation (i.e., ideological differences among parties in government) and size fragmentation (i.e., the effective number of parties in government or the number of spending ministers). Our results suggest that strong budgetary institutions, no matter whether they are based on delegation to a strong minister of finance or on fiscal contracts, reduce the deficit bias in case of strong ideological fragmentation. In contrast, the impact of budgetary institutions is not conditioned by size fragmentation.     

Do constitutions matter? Evidence from a natural experiment at the municipality level

This paper asks if it does matter for taxes and government spending whether the mayor is elected (and recalled) by direct election or by the municipal council. It thus contributes to the economic literature on the impact of constitutions on economic outcomes. The effects are identified based on reforms of the municipal constitutions that were exogenous from the point of view of the municipalities in content and timing: each year, quasi-randomly selected groups of municipalities introduced the new constitution. This setup helps overcome endogeneity and identification issues that are common to many studies in the field using country level data. Using a new panel dataset of the 686 municipalities in three German states, this paper shows that direct mayoral election and recall through referendum only (as opposed to election and recall through the municipal council) reduce tax rates and increases spending on government employees.     

Education and economic growth in the United States: cross-national applications for an intra-national path analysis

Do the leading predictors of economic growth found in the cross-national research have a capacity to predict economic growth at the state level in the United States (US)? Are the effects of education spending on economic growth underestimated because research fails to examine the indirect effects of spending on economic growth? This article presents the findings from a study investigating the relationship between education and economic growth in US states while controlling for the effects of the leading predictors of economic growth from the cross-national research. It also utilizes a path model to examine direct and indirect relationships between education spending and economic growth measured as per capita income growth. The results indicate that spending on higher education and highway expenditures demonstrate a positive association with growth in per capita income, while K12 (kindergarten through 12th grade) spending and K12 pupil–teacher ratios demonstrate a negative association with income growth from 1988 to 2005. Moreover, K12 spending and population growth indirectly affect income growth through their relationship with K12 pupil–teacher ratios, and spending on higher education indirectly affects income growth through college attainment rates. Overall, all but one variable from the cross-national research demonstrates a significant direct or indirect relationship with income growth during at least one time-period investigated. Treating K12 pupil–teacher ratios and college attainment as mediating variables also enhances our understanding of the dynamics that explain growth in per capita income at the sub-national level in the US. However, some unexpected findings emerge when the data are analyzed on the basis of two eight-year sub-periods.