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Federal, State, and Local Governments: Evaluating their Separate Roles in US Growth

  • Higgins, Matthew
  • Young, Andrew
  • Levy, Daniel

We use new US county level data (3,058 observations) from 1970 to 1998 to explore the relationship between economic growth and the size of government at three levels: federal, state and local. Using 3SLS-IV estimation we find that the size of federal, state and local government all either negatively correlate with or are uncorrelated with economic growth. We find no evidence that government is more efficient at more or less decentralized levels. Furthermore, while we cannot separate out the productive and redistributive services of government, we document that the county-level income distribution became slightly wider from 1970 to 1998. Our findings suggest that a release of government-employed labor inputs to the private sector would be growth-enhancing.

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File URL: http://mpra.ub.uni-muenchen.de/1014/1/MPRA_paper_1014.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 1014.

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Date of creation: 03 Nov 2006
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Handle: RePEc:pra:mprapa:1014
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  1. Matthew J. Higgins & Daniel Levy & Andrew T. Young, 2005. "Growth and Convergence across the US: Evidence from County-Level Data," Working Papers 2005-06, Bar-Ilan University, Department of Economics.
  2. Holtz-Eakin, Douglas, 1994. "Public-Sector Capital and the Productivity Puzzle," The Review of Economics and Statistics, MIT Press, vol. 76(1), pages 12-21, February.
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  8. Matthew J. Higgins & Daniel Levy & Andrew T. Young, 2007. "Robust Correlates of County-level Growth in the U.S," Emory Economics 0708, Department of Economics, Emory University (Atlanta).
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  13. Christopher F Baum & Mark E. Schaffer & Steven Stillman, 2002. "Instrumental variables and GMM: Estimation and testing," Boston College Working Papers in Economics 545, Boston College Department of Economics, revised 14 Feb 2003.
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  24. Josep Lluís Carrion-i-Silvestre & Marta Espasa & Toni Mora, 2008. "Fiscal Decentralization and Economic Growth in Spain," Public Finance Review, , vol. 36(2), pages 194-218, March.
  25. Douglas Staiger & James H. Stock, 1997. "Instrumental Variables Regression with Weak Instruments," Econometrica, Econometric Society, vol. 65(3), pages 557-586, May.
  26. Martinez-Vazquez, Jorge & McNab, Robert M., 2003. "Fiscal Decentralization and Economic Growth," World Development, Elsevier, vol. 31(9), pages 1597-1616, September.
  27. Hamid Davoodi & Heng-fu Zou, 1996. "Fiscal Decentralization and Economic Growth: A Cross-Country Study," CEMA Working Papers 98, China Economics and Management Academy, Central University of Finance and Economics.
  28. James H. Stock & Motohiro Yogo, 2002. "Testing for Weak Instruments in Linear IV Regression," NBER Technical Working Papers 0284, National Bureau of Economic Research, Inc.
  29. Wallace E. Oates, 1999. "An Essay on Fiscal Federalism," Journal of Economic Literature, American Economic Association, vol. 37(3), pages 1120-1149, September.
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  31. Stansel, Dean, 2005. "Local decentralization and local economic growth: A cross-sectional examination of US metropolitan areas," Journal of Urban Economics, Elsevier, vol. 57(1), pages 55-72, January.
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