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On the relationship between mobility, population growth, and capital spending in the United States

  • Marco Bassetto
  • Leslie McGranahan

In this paper, we assess the empirical relationship between population growth, mobility, and state-level capital spending in the United States. To evaluate the magnitude of the coefficients, we introduce an explicit, quantitative political-economy model of government spending determination, where mobility and population growth generate departures from Ricardian equivalence. Our estimates find strong responses in the level of capital provision per capita to these demographic movements; in fact, the resulting coefficients are stronger than the model delivers. Regression coefficients on population growth and mobility also yield opposite implications for the direction to which spending is distorted by the political-economy friction, posing a further challenge.

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Paper provided by Federal Reserve Bank of Chicago in its series Working Paper Series with number WP-09-25.

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Date of creation: 2009
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Handle: RePEc:fip:fedhwp:wp-09-25
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  1. Battaglini, Marco & Coate, Stephen, 2005. "Inefficiency in Legislative Policy-Making: A Dynamic Analysis," Papers 08-09-2005, Princeton University, Research Program in Political Economy.
  2. Marco Battaglini & Stephen Coate, 2008. "Fiscal Policy over the Real Business Cycle: A Positive Theory," NBER Working Papers 14047, National Bureau of Economic Research, Inc.
  3. Zheng Song, 2009. "Rotten Parents and Disciplined Children: A Politico-Economic Theory of Public Expenditure and Debt," 2009 Meeting Papers 94, Society for Economic Dynamics.
  4. Marina Azzimonti, 2009. "Barriers to investment in polarized societies," 2009 Meeting Papers 1233, Society for Economic Dynamics.
  5. Marina, Azzimonti & Marco, Battaglini & Stephen, Coate, 2010. "On the Case for a Balanced Budget Amendment to the U.S. Constitution," MPRA Paper 25935, University Library of Munich, Germany.
  6. Marco Battaglini & Stephen Coate, 2007. "A Dynamic Theory of Public Spending, Taxation and Debt," Discussion Papers 1441, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  7. Paul Klein & Per Krusell & José-Víctor Ríos-Rull, 2008. "Time-Consistent Public Policy," Review of Economic Studies, Oxford University Press, vol. 75(3), pages 789-808.
  8. Thomas J. Sargent & Marco Bassetto, 2004. "Politics and Efficiency of Separating Capital and Ordinary Government Budgets," 2004 Meeting Papers 3, Society for Economic Dynamics.
  9. Ruediger Bachmann & Jinhui Bai, 2010. "Government Purchases Over the Business Cycle: the Role of Economic and Political Inequality," NBER Working Papers 16247, National Bureau of Economic Research, Inc.
  10. Rappaport, J., 2000. "Local Growth Empirics," Papers 23, Chicago - Graduate School of Business.
  11. John Kennan & James R. Walker, 2011. "The Effect of Expected Income on Individual Migration Decisions," Econometrica, Econometric Society, vol. 79(1), pages 211-251, 01.
  12. Marco Bassetto, 2008. "Public investment and budget rules for state vs. local governments," Working Paper Series WP-08-21, Federal Reserve Bank of Chicago.
  13. Marco Bassetto & Vadym Lepetyuk, 2007. "Government Investment and the European Stability and Growth Pact," NBER Working Papers 13200, National Bureau of Economic Research, Inc.
  14. Ross, Stephen & Yinger, John, 1999. "Sorting and voting: A review of the literature on urban public finance," Handbook of Regional and Urban Economics, in: P. C. Cheshire & E. S. Mills (ed.), Handbook of Regional and Urban Economics, edition 1, volume 3, chapter 47, pages 2001-2060 Elsevier.
  15. Ruediger Bachmann & Jinhui Bai, 2012. "Online Appendix to "Politico-Economic Inequality and the Comovement of Government Purchases"," Technical Appendices 11-243, Review of Economic Dynamics.
  16. Timothy Besley & Torsten Persson & Daniel M. Sturm, 2010. "Political Competition, Policy and Growth: Theory and Evidence from the United States," CEP Discussion Papers dp1009, Centre for Economic Performance, LSE.
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