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Brains, drains, and roads, growth hills: complementarity between public education and infrastructure in a half-century panel of states

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  • Stone, Joe
  • Bania, Neil

Abstract

Applying a Barro-style model of endogenous growth to a fifty-year panel of states from 1957 to 2007, We examine the extent to which expenditures on public education and infrastructure— together with the taxes necessary to support them— enhance or impede the steady-state growth of state and local economies, as measured by per capita personal income. Our findings suggest that the independent effect of tax expenditures on either public infrastructure or education alone is significantly negative, but the complementary effect of each on the other is positive enough to make their combined effect significantly positive— except at large scales, where we find diseconomies, consistent with the ‘growth hill’ predicted by theory. Policy effects are identified empirically using a recursive structure with very long lags, GMM/instrumental variables, and controls for both fixed and time-varying heterogeneity. Results are robust to a variety of alternative specifications.

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  • Stone, Joe & Bania, Neil, 2009. "Brains, drains, and roads, growth hills: complementarity between public education and infrastructure in a half-century panel of states," MPRA Paper 16173, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:16173
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    File URL: https://mpra.ub.uni-muenchen.de/16173/1/MPRA_paper_16173.pdf
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    1. Andrew Haughwout & Robert Inman & Steven Craig & Thomas Luce, 2004. "Local Revenue Hills: Evidence from Four U.S. Cities," The Review of Economics and Statistics, MIT Press, vol. 86(2), pages 570-585, May.
    2. Mofidi, Alaeddin & Stone, Joe A, 1990. "Do State and Local Taxes Affect Economic Growth?," The Review of Economics and Statistics, MIT Press, vol. 72(4), pages 686-691, November.
    3. Joe Stone & Jo Anna Gray, 2006. "Ricardian equivalence for sub-national states," Economics Bulletin, AccessEcon, vol. 5(1), pages 1-12.
    4. Jacques Poot, 2000. "A Synthesis of Empirical Research on the Impact of Government onLong‐Run Growth," Growth and Change, Wiley Blackwell, vol. 31(4), pages 516-546.
    5. Mark, Stephen T. & McGuire, Therese J. & Papke, Leslie E., 2000. "The Influence of Taxes on Employment and Population Growth: Evidence from the Washington, D.C. Metropolitan Area," National Tax Journal, National Tax Association, vol. 53(n. 1), pages 105-24, March.
    6. repec:ebl:ecbull:v:5:y:2006:i:1:p:1-12 is not listed on IDEAS
    7. Alfredo M. Pereira, 2000. "Is All Public Capital Created Equal?," The Review of Economics and Statistics, MIT Press, vol. 82(3), pages 513-518, August.
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    Cited by:

    1. Francois, Joseph & Manchin, Miriam, 2013. "Institutions, Infrastructure, and Trade," World Development, Elsevier, vol. 46(C), pages 165-175.
    2. Roberto Urrunaga & Sara Wong, 2015. "When the total is more than the sum of parts : infrastructure complementarities," Working Papers 15-09, Centro de Investigación, Universidad del Pacífico.

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    More about this item

    Keywords

    growth human capital public infrastructure;

    JEL classification:

    • H4 - Public Economics - - Publicly Provided Goods
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • H00 - Public Economics - - General - - - General

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