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Do Economic Development Incentives Crowd Out Public Expenditures in U.S. States?

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  • Wang Jia

    () (Department of Economics, University of the South, Sewanee, TN, USA)

Abstract

This paper investigates whether economic development incentives (EDI) crowd out public expenditures in U.S. states. Using EDI data from a new database, this paper employs a two-way fixed effect panel framework and generalized method of moments (GMM) approach to account for dynamic features associated with public expenditures. Potential endogeneity of policy variables and problems with unbalanced panels are also addressed. Results show relatively little effect of incentives spending on most public goods expenditures contemporaneously, with negative repercussions beginning to appear in year one. Findings of this paper carry practical importance for policymakers concerning the efficacy of incentives.

Suggested Citation

  • Wang Jia, 2016. "Do Economic Development Incentives Crowd Out Public Expenditures in U.S. States?," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 16(1), pages 513-538, January.
  • Handle: RePEc:bpj:bejeap:v:16:y:2016:i:1:p:513-538:n:12
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    References listed on IDEAS

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    1. Timothy J. Bartik, 1991. "Who Benefits from State and Local Economic Development Policies?," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number wbsle.
    2. Timothy J. Bartik, 2000. "Jobs, Productivity, and Local Economic Development: What Implications Does Economic Research Have for the Role of Government?," Book chapters authored by Upjohn Institute researchers,in: Robert W. Wassmer (ed.), Readings in Urban Economics: Issues and Public Policy, pages 72-122 W.E. Upjohn Institute for Employment Research.
    3. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
    4. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
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