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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 investigate the relationship between public capital spending and population dynamics at the state level. Empirically, we document two robust facts. First, states with faster population growth do not spend more (per capita) to accommodate the needs of their growing population. Second, states whose population is more likely to leave do tend to spend more per capita than states with low gross emigration rates. To interpret these facts, we introduce an explicit, quantitative political-economy model of government spending determination, where mobility and population growth generate departures from Ricardian equivalence by shifting some of the costs and benefits of public projects to future residents. The magnitude of the empirical response of capital spending to mobility is at the upper end of what can be explained by the theory with a plausible calibration. In the model, more mobile voters favor more spending because the maturity of states' debt is very long term and costs are shifted into the future more than benefits.

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File URL: http://www.nber.org/papers/w16970.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16970.

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Date of creation: Apr 2011
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Handle: RePEc:nbr:nberwo:16970
Note: EFG
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  1. Barseghyan, Levon & Battaglini, Marco & Coate, Stephen, 2013. "Fiscal policy over the real business cycle: A positive theory," Journal of Economic Theory, Elsevier, vol. 148(6), pages 2223-2265.
  2. Marco Bassetto & Thomas Sargent, 2005. "Politics and Efficiency of Separating Capital and Ordinary Government Budgets," NBER Working Papers 11030, National Bureau of Economic Research, Inc.
  3. 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.
  4. Marina Azzimonti, 2009. "Barriers to investment in polarized societies," 2009 Meeting Papers 1233, Society for Economic Dynamics.
  5. 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.
  6. Marco Bassetto, 2008. "Public investment and budget rules for state vs. local governments," Working Paper Series WP-08-21, Federal Reserve Bank of Chicago.
  7. repec:bla:restud:v:75:y:2008:i:3:p:789-808 is not listed on IDEAS
  8. Song, Zheng Michael & Storesletten, Kjetil & Zilibotti, Fabrizio, 2012. "Rotten Parents and Disciplined Children: A Politico-Economic Theory of Public Expenditure and Debt," CEPR Discussion Papers 8738, C.E.P.R. Discussion Papers.
  9. 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.
  10. Marco Bassetto & Vadym Lepetyuk, 2007. "Government investment and the European stability and growth pact," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q III, pages 33-43.
  11. 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.
  12. Stephen Coate & Marco Battaglini, 2005. "Inefficiency in Legislative Policy-Making: A Dynamic Analysis," 2005 Meeting Papers 209, Society for Economic Dynamics.
  13. Marco Battaglini, 2009. "On the Case for a Balanced Budget Amendment to the U.S. Constitution," 2009 Meeting Papers 131, Society for Economic Dynamics.
  14. Rappaport, J., 2000. "Local Growth Empirics," Papers 23, Chicago - Graduate School of Business.
  15. Marco Battaglini & Steve Coate, 2006. "A Dynamic Theory of Public Spending, Taxation and Debt," Levine's Bibliography 122247000000001094, UCLA Department of Economics.
  16. Paul Klein & Per Krusell & José-V�ctor R�os-Rull, 2008. "Time-Consistent Public Policy," Review of Economic Studies, Oxford University Press, vol. 75(3), pages 789-808.
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