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Federal, State, and Local Governments: Evaluating Their Separate Roles in U.S. Growth

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  • Matthew J. Higgins
  • Daniel Levy
  • Andrew T. Young

Abstract

We use U.S. county level data (3,058 observations) from 1970 to 1998 to explore the relationship between economic growth and the extent of government employment at three levels: federal, state and local. We find that increases in federal, state, and local government employments are all negatively associated with economic growth. We find no evidence that government is more efficient at more decentralized levels and thus reject Oates' (1972) "decentralization theorem." Furthermore, while we cannot separate out the productive and redistributive services of government, we document that the county-level income distribution became slightly wider from 1970 to 1998. For those who justify government activities in terms of equity concerns - perhaps even trading off economic growth for equity - the burden falls on them to show that the income distribution would have widened significantly more in the absence of government activities. We conclude that a release of government-employed labor inputs to the private sector would be growth-enhancing.

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Paper provided by Department of Economics, Emory University (Atlanta) in its series Emory Economics with number 0801.

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Date of creation: Feb 2008
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Handle: RePEc:emo:wp2003:0801

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Cited by:
  1. Shanaka Herath, 2010. "The Size of the Government and Economic Growth: An Empirical Study of Sri Lanka," SRE-Disc sre-disc-2010_05, Institute for the Environment and Regional Development, Department of Socioeconomics, Vienna University of Economics and Business.
  2. Young, Andrew T. & Higgins, Matthew J. & Levy, Daniel, 2013. "Heterogeneous convergence," Economics Letters, Elsevier, vol. 120(2), pages 238-241.
  3. Shanaka Herath, 2012. "Size Of Government And Economic Growth: A Nonlinear Analysis," Economic Annals, Faculty of Economics, University of Belgrade, vol. 57(194), pages 7-30, July - Se.

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