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Intertemporal Analysis of State and Local Government Spending: Theory ad Tests

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  • Douglas Holtz-Eakin
  • Harvey S. Rosen
  • Schuyler Tilly

Abstract

Do state and local governments smooth their consumption spending across years, or is their spending driven mainly by contemporaneous changes in resources? We design a test to determine which view of state and local spending is more consistent with the data. We find that state and local spending is determined primarily by current (as opposed to permanent) resources. That is, despite their apparent ability to skirt balanced budget laws, states and localities do not typically smooth their expenditures over time.

Suggested Citation

  • Douglas Holtz-Eakin & Harvey S. Rosen & Schuyler Tilly, 1993. "Intertemporal Analysis of State and Local Government Spending: Theory ad Tests," NBER Working Papers 4261, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:4261
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    References listed on IDEAS

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    1. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-987, December.
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    6. Abel, Andrew B & Blanchard, Olivier J, 1986. "The Present Value of Profits and Cyclical Movements in Investment," Econometrica, Econometric Society, vol. 54(2), pages 249-273, March.
    7. Charles R. Hulten & Robert M. Schwab, 1988. "Income Originating in the State and Local Sector," NBER Chapters,in: Fiscal Federalism: Quantitative Studies, pages 215-254 National Bureau of Economic Research, Inc.
    8. Mankiw, N. Gregory, 1987. "The optimal collection of seigniorage : Theory and evidence," Journal of Monetary Economics, Elsevier, vol. 20(2), pages 327-341, September.
    9. Michael J. Boskin & Marc S. Robinson & Alan M. Huber, 1987. "New Estimates of State and Local Government Tangible Capital and Net Investment," NBER Working Papers 2131, National Bureau of Economic Research, Inc.
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    11. Douglas Holtz-Eakin & Harvey S. Rosen, 1989. "Municipal Construction Spending: An Empirical Examination," NBER Working Papers 2989, National Bureau of Economic Research, Inc.
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    Citations

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    Cited by:

    1. Borge, Lars-Erik & Dahlberg, Matz & Tovmo, Per, 2001. "The Intertemporal Spending Behavior of Local Governments: A Comparative Analysis of the Scandinavian Countries," Working Paper Series 2001:10, Uppsala University, Department of Economics.
    2. Persson, Lovisa, 2013. "Consumption smoothing in a balanced budget regim," Working Paper Series 2013:19, Uppsala University, Department of Economics.
    3. Maria Cornachione Kula, 2014. "Are US state and local governments consumption smoothers?," Journal of Economic Studies, Emerald Group Publishing, vol. 41(1), pages 87-100, January.
    4. Yakovlev, Pavel & Tosun, Mehmet S. & Lewis, William P., 2012. "Legislative Term Limits and State Aid to Local Governments," IZA Discussion Papers 6456, Institute for the Study of Labor (IZA).
    5. Craig, Steven G. & Hemissi, Wided & Mukherjee, Satadru & Sørensen, Bent E., 2016. "How do politicians save? Buffer-stock management of unemployment insurance finance," Journal of Urban Economics, Elsevier, vol. 93(C), pages 18-29.
    6. Gerald Carlino & Robert P. Inman, 2013. "Macro Fiscal Policy in Economic Unions: States as Agents," NBER Working Papers 19559, National Bureau of Economic Research, Inc.
    7. Solé-Ollé, Albert & Viladecans-Marsal, Elisabet, 2017. "Housing booms and busts and local fiscal policy," ZEW Discussion Papers 17-001, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    8. Moisio, Antti, 2002. "Essays on Finnish Municipal Finance and Intergovernmental Grants," Research Reports 93, VATT Institute for Economic Research.
    9. Lars-Erik Borge & Per Tovmo, 2009. "Myopic or Constrained by Balanced-Budget Rules? The Intertemporal Spending Behavior of Norwegian Local Governments," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 65(2), pages 200-219, June.
    10. Abdul Jalil, Ahmad Zafarullah & Abdul Karim, Noor Al-Huda, 2008. "Constraining the spending behavior of subnational governments through borrowing limitation: The case of Malaysia," MPRA Paper 25234, University Library of Munich, Germany.
    11. Antti Moisio, 2001. "On Local Government Spending and Taxation Behaviour - Effect of population size and economic condition," ERSA conference papers ersa01p170, European Regional Science Association.
    12. Dahlberg, Matz & Lindstrom, Tomas, 1998. "Are Local Governments Governed by Forward Looking Decision Makers?: An Investigation of Spending Patterns in Swedish Municipalities," Journal of Urban Economics, Elsevier, vol. 44(2), pages 254-271, September.
    13. repec:eco:journ3:2018-01-16 is not listed on IDEAS
    14. Black, Geoffrey & Holley, Donald & Solan, David & Bergloff, Michael, 2014. "Fiscal and economic impacts of state incentives for wind energy development in the Western United States," Renewable and Sustainable Energy Reviews, Elsevier, vol. 34(C), pages 136-144.
    15. Antti Moisio, 2001. "On Local Government Spending and Taxation Behaviour - effect of population size and economic condition," Discussion Papers 257, Government Institute for Economic Research Finland (VATT).
    16. Winer, Stanley L. & Ferris, J. Stephen, 2008. "Searching for Keynesianism," European Journal of Political Economy, Elsevier, vol. 24(2), pages 294-316, June.
    17. Maria Kula, 2004. "Credit market discipline: Theory and evidence," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 10(1), pages 58-71, February.
    18. Aronsson, Thomas, 2004. "Social Accounting and the Public Sector," Umeå Economic Studies 644, Umeå University, Department of Economics.
    19. Lovisa Persson, 2016. "Government consumption smoothing in a balanced budget regime," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 23(2), pages 289-315, April.
    20. repec:kap:iaecre:v:10:y:2004:i:1:p:58-71 is not listed on IDEAS
    21. Stanley L. Winer & J Stephen Ferris, 2003. "Searching for Keynes: An Essay on the Political Economy of Fiscal Policy, with Application to Canada, 1870-2000 - revised version," CESifo Working Paper Series 1016, CESifo Group Munich.

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    JEL classification:

    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General

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