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The Spillover Effects of State Spending

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  • Katherine Baicker

Abstract

This paper estimates the degree to which state spending is influenced by the spending of neighboring states. Focusing on mandated increases in welfare spending, I find that each dollar of state spending causes spending in neighboring states to increase by 37 to 88 cents. I use more plausibly exogenous variation than previous studies to abstract from the endogeneity of neighbors' spending, and show that previous estimates may have been biased. I also explore the strength of several different measures of neighborliness. The most predictive measure is the degree of population mobility between states, suggesting that concerns about migration may drive the interdependence of state spending policy.

Suggested Citation

  • Katherine Baicker, 2001. "The Spillover Effects of State Spending," NBER Working Papers 8383, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:8383
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    References listed on IDEAS

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    1. Phillip B. Levine & David J. Zimmerman, 1999. "An empirical analysis of the welfare magnet debate using the NLSY," Journal of Population Economics, Springer;European Society for Population Economics, vol. 12(3), pages 391-409.
    2. Gramlich, Edward M & Rubinfeld, Daniel L, 1982. "Micro Estimates of Public Spending Demand Functions and Tests of the Tiebout and Median-Voter Hypotheses," Journal of Political Economy, University of Chicago Press, vol. 90(3), pages 536-560, June.
    3. K. Newey, Whitney, 1985. "Generalized method of moments specification testing," Journal of Econometrics, Elsevier, vol. 29(3), pages 229-256, September.
    4. Cutler, David M & Elmendorf, Douglas W & Zeckhauser, Richard J, 1993. "Demographic Characteristics and the Public Bundle," Public Finance = Finances publiques, , vol. 48(Supplemen), pages 178-198.
    5. Case, Anne C, 1991. "Spatial Patterns in Household Demand," Econometrica, Econometric Society, vol. 59(4), pages 953-965, July.
    6. Figlio, David N. & Kolpin, Van W. & Reid, William E., 1999. "Do States Play Welfare Games?," Journal of Urban Economics, Elsevier, vol. 46(3), pages 437-454, November.
    7. Case, Anne C. & Rosen, Harvey S. & Hines, James Jr., 1993. "Budget spillovers and fiscal policy interdependence : Evidence from the states," Journal of Public Economics, Elsevier, vol. 52(3), pages 285-307, October.
    8. Conley, T. G., 1999. "GMM estimation with cross sectional dependence," Journal of Econometrics, Elsevier, vol. 92(1), pages 1-45, September.
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    Cited by:

    1. Rork, Jonathan C., 2003. "Coveting Thy Neighbors' Taxation," National Tax Journal, National Tax Association;National Tax Journal, vol. 56(4), pages 775-787, December.
    2. Redoano, Michela, 2003. "Fiscal Interactions Among European Countries," The Warwick Economics Research Paper Series (TWERPS) 680, University of Warwick, Department of Economics.
    3. Alun H. Thomas, 2006. "Do Debt-Service Savings and Grants Boost Social Expenditures?," IMF Working Papers 06/180, International Monetary Fund.
    4. Sasser, Alicia C., 2010. "Voting with their feet: Relative economic conditions and state migration patterns," Regional Science and Urban Economics, Elsevier, vol. 40(2-3), pages 122-135, May.

    More about this item

    JEL classification:

    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations

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