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The Spillover Effects of State Spending

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  • Katherine Baicker
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    Abstract

    This paper estimates the degree to which state spending is influenced by the spending of neighboring states. Focusing on mandated increases in welfare spending, I find that each dollar of state spending causes spending in neighboring states to increase by 37 to 88 cents. I use more plausibly exogenous variation than previous studies to abstract from the endogeneity of neighbors' spending, and show that previous estimates may have been biased. I also explore the strength of several different measures of neighborliness. The most predictive measure is the degree of population mobility between states, suggesting that concerns about migration may drive the interdependence of state spending policy.

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    File URL: http://www.nber.org/papers/w8383.pdf
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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8383.

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    Date of creation: Jul 2001
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    Publication status: published as Baicker, Katherine. "The Spillover Effects Of State Spending," Journal of Public Economics, 2005, v89(2-3,Feb), 529-544.
    Handle: RePEc:nbr:nberwo:8383

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    1. Cutler, David M & Elmendorf, Douglas W & Zeckhauser, Richard J, 1993. "Demographic Characteristics and the Public Bundle," Public Finance = Finances publiques, , vol. 48(Supplemen), pages 178-98.
    2. Phillip B. Levine & David J. Zimmerman, 1999. "An empirical analysis of the welfare magnet debate using the NLSY," Journal of Population Economics, Springer, vol. 12(3), pages 391-409.
    3. Conley, T. G., 1999. "GMM estimation with cross sectional dependence," Journal of Econometrics, Elsevier, vol. 92(1), pages 1-45, September.
    4. Gramlich, Edward M & Rubinfeld, Daniel L, 1982. "Micro Estimates of Public Spending Demand Functions and Tests of the Tiebout and Median-Voter Hypotheses," Journal of Political Economy, University of Chicago Press, vol. 90(3), pages 536-60, June.
    5. K. Newey, Whitney, 1985. "Generalized method of moments specification testing," Journal of Econometrics, Elsevier, vol. 29(3), pages 229-256, September.
    6. Case, Anne C. & Rosen, Harvey S. & Hines, James Jr., 1993. "Budget spillovers and fiscal policy interdependence : Evidence from the states," Journal of Public Economics, Elsevier, vol. 52(3), pages 285-307, October.
    7. Case, Anne C, 1991. "Spatial Patterns in Household Demand," Econometrica, Econometric Society, vol. 59(4), pages 953-65, July.
    8. Figlio, David N. & Kolpin, Van W. & Reid, William E., 1999. "Do States Play Welfare Games?," Journal of Urban Economics, Elsevier, vol. 46(3), pages 437-454, November.
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    Cited by:
    1. Redoano, Michela, 2003. "Fiscal Interactions Among European Countries," The Warwick Economics Research Paper Series (TWERPS) 680, University of Warwick, Department of Economics.
    2. Rork, Jonathan C., 2003. "Coveting Thy Neighbors' Taxation," National Tax Journal, National Tax Association, vol. 56(4), pages 775-87, December.
    3. Sasser, Alicia C., 2010. "Voting with their feet: Relative economic conditions and state migration patterns," Regional Science and Urban Economics, Elsevier, vol. 40(2-3), pages 122-135, May.
    4. Alun H. Thomas, 2006. "Do Debt-Service Savings and Grants Boost Social Expenditures?," IMF Working Papers 06/180, International Monetary Fund.

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