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The Impact of Subnational Fiscal Policies on Economic Growth: A Dynamic Analysis Approach

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  • Arwiphawee Srithongrung
  • Kenneth A. Kriz

Abstract

Much previous research has analyzed the effect of state and local taxes and expenditures on economic growth, but usually in a static manner. In this paper, we use panel vector autoregression (PVAR) to examine the effects of taxes and expenditures on state income growth. This methodology allows us to treat all variables in the model as endogenously determined. Our approach allows us to address the endogeneity problem inherent in fiscal policy research as well as to obtain results for both the short term and intermediate term (up to six years). Consistent with prevailing wisdom, taxes are shown to have a negative effect on economic growth, but the effect only is present in the short run. Public capital spending has a positive effect on growth in both the short and intermediate terms. Operational expenditures exhibit positive effects on growth over the entire analysis period.

Suggested Citation

  • Arwiphawee Srithongrung & Kenneth A. Kriz, 2014. "The Impact of Subnational Fiscal Policies on Economic Growth: A Dynamic Analysis Approach," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 33(4), pages 912-928, September.
    • Handle: RePEc:wly:jpamgt:v:33:y:2014:i:4:p:912-928
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    File URL: http://hdl.handle.net/10.1002/pam.21784
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    Cited by:

    1. Louis-Philippe Beland & Sara Oloomi, 2015. "Party Affiliation and Public Spending," Departmental Working Papers 2015-08, Department of Economics, Louisiana State University.
    2. Isaac Sánchez-Juárez & Rosa García-Almada, 2016. "Public Debt, Public Investment and Economic Growth in Mexico," IJFS, MDPI, vol. 4(2), pages 1-14, March.
    3. Arwiphawee Srithongrung & Isaac S nchez-Ju rez, 2015. "Fiscal Policies and Subnational Economic Growth in Mexico," International Journal of Economics and Financial Issues, Econjournals, vol. 5(1), pages 11-22.
    4. Thobeka Ncanywa & Marius Mamokgaetji Masoga, 2018. "Can public debt stimulate public investment and economic growth in South Africa?," Cogent Economics & Finance, Taylor & Francis Journals, vol. 6(1), pages 1516483-151, January.
    5. Qing Miao & Yilin Hou & Michael Abrigo, 2018. "Measuring the Financial Shocks of Natural Disasters: A Panel Study of U.S. States," National Tax Journal, National Tax Association;National Tax Journal, vol. 71(1), pages 11-44, March.
    6. Fred Thompson & Kawika Pierson & Michael L. Hand & Michael U. Dothan, 2017. "Is a Good Normative Model of Public Spending Run Backward a Good Positive Model?," Public Budgeting & Finance, Wiley Blackwell, vol. 37(2), pages 35-57, June.
    7. Arwiphawee Srithongrung & Patricia Byrnes, 2019. "The Causal Linkages Among Arts, Knowledge Employment, and Local Economic Performance," Economic Development Quarterly, , vol. 33(4), pages 296-315, November.
    8. Vese Qehaja-Kekae & Driton Qehaja & Arber Hoti, 2023. "The Effect of Fiscal Deficits on Economic Growth: Evidence from Eurozone Countries," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 6, pages 3-18.

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