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The Spillover Effects of State Spending

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Author Info
Katherine Baicker
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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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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Handle: RePEc:nbr:nberwo:8383

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H7 - Public Economics - - State and Local Government; Intergovernmental Relations

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  1. Redoano, Michela, 2003. "Fiscal Interactions Among European Countries," The Warwick Economics Research Paper Series (TWERPS) 680, University of Warwick, Department of Economics. [Downloadable!]
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