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The Tax Spending Nexus: Evidence from a Panel of US State-Local Governments


  • Saeid Mahdavi

    (University of Texas at San Antonio)

  • Joakim Westerlund

    (Lund University)


We re-examine the tax-spending nexus using, for the first time, a panel of fifty US state-local government units over the period 1963-97 and panel techniques that allow for cross-sectional dependence. We find that, unlike tax revenues, expenditures adjust to revert back to a long-term equilibrium relationship. The evidence on the short-term dynamics is also consistent with the tax-and-spend hypothesis at the one percent level of significance. One implication of this finding is that the size of the government at the state-local level is not determined by expenditure demand, but rather by resource supply. This is consistent with the fact that many US state and local governments operate under constitutional or legislative limitations that seek to constrain deficits.

Suggested Citation

  • Saeid Mahdavi & Joakim Westerlund, "undated". "The Tax Spending Nexus: Evidence from a Panel of US State-Local Governments," Working Papers 0045, College of Business, University of Texas at San Antonio.
  • Handle: RePEc:tsa:wpaper:0045

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    References listed on IDEAS

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    Cited by:

    1. Bayer, Ralph-C. & Oberhofer, Harald & Winner, Hannes, 2015. "The occurrence of tax amnesties: Theory and evidence," Journal of Public Economics, Elsevier, vol. 125(C), pages 70-82.
    2. repec:kap:iaecre:v:21:y:2015:i:3:p:299-315 is not listed on IDEAS
    3. repec:ksp:journ1:v:4:y:2017:i:1:p:53-70 is not listed on IDEAS
    4. Johann Bröthaler & Michael Getzner, 2015. "The Tax-Spend Debate and Budgetary Policy in Austria," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 21(3), pages 299-315, August.
    5. Mihai Mutascu, 2015. "Government revenues and expenditures in the EU ex-communist countries: a bootstrap panel Granger causality approach," Working Papers halshs-01109233, HAL.
    6. repec:seb:journl:v:15:y:2017:i:1:p:47-61 is not listed on IDEAS

    More about this item


    tax-spend; state and local government; public finance; and panel cointegration.;

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models


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