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Do State Fiscal Policies Affect State Economic Growth?

Author

Listed:
  • James Alm

    () (Department of Economics, Tulane University)

  • Janet Rogers

    () (Department of Planning Section, Nevada Department of Administration Division of Budget & Planning)

Abstract

What factors influence state economic growth? This paper uses annual state (and local) data for the years 1947 to 1997 for the 48 contiguous states to estimate the effects of a large number of factors, including taxation and expenditure policies, on state economic growth. A special feature of the empirical work is the use of orthogonal distance regression (ODR) to deal with the likely presence of measurement error in many of the variables. The results indicate that the correlation between state (and state and local) taxation policies is often statistically significant but also quite sensitive to the specific regressor set and time period; in contrast, the effects of expenditure policies are much more consistent. Of some interest, there is moderately strong evidence that a state's political orientation has consistent and measurable effects on economic growth; perhaps surprisingly, a more "conservative" political orientation is associated with lower rates of economic growth. Finally, correction for measurement error is essential in estimating the growth impacts of policies. Indeed, when measurement error is considered via ODR estimation, the estimation results do not support conditional convergence in state per capita income.

Suggested Citation

  • James Alm & Janet Rogers, 2011. "Do State Fiscal Policies Affect State Economic Growth?," Working Papers 1107, Tulane University, Department of Economics.
  • Handle: RePEc:tul:wpaper:1107
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    File URL: http://repec.tulane.edu/RePEc/pdf/tul1107.pdf
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    References listed on IDEAS

    as
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    Citations

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    Cited by:

    1. James Alm, 2017. "Is Economics Useful for Public Policy?," Working Papers 1702, Tulane University, Department of Economics.
    2. repec:bla:coecpo:v:35:y:2017:i:1:p:165-192 is not listed on IDEAS
    3. Zachary Horváth & Brian David Moore & Jonathan C. Rork, 2014. "Does Federal Aid to States Aid the States?," Growth and Change, Wiley Blackwell, vol. 45(2), pages 333-361, June.
    4. W. Robert Reed, 2009. "The Determinants Of U.S. State Economic Growth: A Less Extreme Bounds Analysis," Economic Inquiry, Western Economic Association International, vol. 47(4), pages 685-700, October.
    5. repec:kap:pubcho:v:174:y:2018:i:1:d:10.1007_s11127-017-0491-3 is not listed on IDEAS
    6. repec:pje:journl:article28sumv is not listed on IDEAS
    7. Crosby, Andrew W. & Merriman, David F., 2016. "What Happened to Illinois’ Economy Following the January 2011 Tax Increases? A Midwestern Comparison," Journal of Regional Analysis and Policy, Mid-Continent Regional Science Association, vol. 46(1).
    8. Goldberg, Andrew & Romalis, John, 2015. "Public Debt and Growth in U.S. States," Working Papers 2015-10, University of Sydney, School of Economics.

    More about this item

    Keywords

    fiscal policies; regional economic growth; orthogonal distance regression;

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • R1 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics
    • R5 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis

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