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Political competition, causal relationships between taxes and spending, and their influence on government size: evidence from state-level data

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  • Diane Lim Rogers
  • John H. Rogers

Abstract

Theories of fiscal illusion and political competition have different implications for (i) the causal relationships between taxes and spending, and (ii) government size. These are tested using data from u.s. states from 1950 to 1990. We find evidence that greater political competition generally encourages bigger government, the Democratic Party is associated with bigger government, and state governments which "tax first, spend later" are more likely to be large. Other factors related to the fiscal illusion and political competition theories also appear to be important determinants of government size.

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File URL: http://www.federalreserve.gov/pubs/ifdp/1995/500/default.htm
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File URL: http://www.federalreserve.gov/pubs/ifdp/1995/500/ifdp500.pdf
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Bibliographic Info

Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 500.

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Date of creation: 1995
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Handle: RePEc:fip:fedgif:500

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Related research

Keywords: State finance ; Taxation;

References

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  1. Timothy Besley & Anne Case, 1993. "Does Electoral Accountability Affect Economic Policy Choices? Evidence from Gubernatorial Term Limits," NBER Working Papers 4575, National Bureau of Economic Research, Inc.
  2. Barro, Robert J., 1979. "On the Determination of the Public Debt," Scholarly Articles 3451400, Harvard University Department of Economics.
  3. Dennis Mueller & Peter Murrell, 1986. "Interest groups and the size of government," Public Choice, Springer, vol. 48(2), pages 125-145, January.
  4. Holtz-Eakin, Douglas & Newey, Whitney & Rosen, Harvey S, 1989. "The Revenues-Expenditures Nexus: Evidence from Local Government Data," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(2), pages 415-29, May.
  5. Rubinfeld, Daniel L., 1987. "The economics of the local public sector," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 2, chapter 11, pages 571-645 Elsevier.
  6. Kevin D. Hoover & Steven M. Sheffrin, 1990. "Causation, spending and taxes: sand in the sandbox or tax collector for the welfare state?," Proceedings, Federal Reserve Bank of San Francisco, issue Nov.
  7. von Furstenberg, George M & Green, R Jeffrey & Jeong, Jin-Ho, 1986. "Tax and Spend, or Spend and Tax?," The Review of Economics and Statistics, MIT Press, vol. 68(2), pages 179-88, May.
  8. Mueller,Dennis C., 2003. "Public Choice III," Cambridge Books, Cambridge University Press, number 9780521894753, November.
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Cited by:
  1. Fox, William F. & Gurley, Tami, 2006. "Will consolidation improve sub-national governments ?," Policy Research Working Paper Series 3913, The World Bank.

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