The tax-spend debate: Time series evidence from state budgets

This paper examines the temporal relationship between revenues and expenditures for the forty-eight contiguous states over an annual period 1942 to 1992. Using an error-correction model, we find that the tax-spend hypothesis is supported for twenty-four states. The spend-tax hypothesis is valid for eight states while the fiscal synchronization hypothesis is supported for eleven states. The remaining five states failed the diagnostic tests for error-correction modeling.