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US State Fiscal Policy and Natural Resources

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  • Alexander James

Abstract

An analytical framework predicts that, in response to an exogenous increase in resource-based government revenue, a benevolent government will partially substitute away from taxing income, increase spending and save. Fifty-one years of US-state level data are largely consistent with this theory. A baseline fixed effects model predicts that a $1.00 increase in resource revenue results in a $0.25 decrease in nonresource revenue, a $0.43 increase in spending and a $0.32 increase in savings. Instrumenting for resource revenue reveals that a positive revenue shock is largely saved and the rest is transferred back to residents in the form of lower non resource tax rates. (JEL H71, H72, H76, Q38, R11)

Suggested Citation

  • Alexander James, 2015. "US State Fiscal Policy and Natural Resources," American Economic Journal: Economic Policy, American Economic Association, vol. 7(3), pages 238-257, August.
  • Handle: RePEc:aea:aejpol:v:7:y:2015:i:3:p:238-57
    Note: DOI: 10.1257/pol.20130211
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    References listed on IDEAS

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    14. Alexander James, 2015. "US State Fiscal Policy and Natural Resources," American Economic Journal: Economic Policy, American Economic Association, vol. 7(3), pages 238-257, August.
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    19. Alexander James, 2015. "US State Fiscal Policy and Natural Resources," American Economic Journal: Economic Policy, American Economic Association, vol. 7(3), pages 238-57, August.
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    More about this item

    JEL classification:

    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • H76 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Other Expenditure Categories
    • Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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