Higgins, Matthew and Young, Andrew and Levy, Daniel (2009): Federal, State, and Local Governments: Evaluating their Separate Roles in US Growth.
Download (129kB) | Preview
We use US county level data (3,058 observations) from 1970 to 1998 to explore the relationship between economic growth and the extent of government employment at three levels: federal, state and local. We find that increases in federal, state and local government employments are all negatively associated with economic growth. We find no evidence that government is more efficient at lower levels. While we cannot separate out the productive and redistributive services of government, we document that the county-level income distribution became slightly more unequal from 1970 to 1998. For those who justify government activities in terms of equity concerns – perhaps even trading off economic growth for equity – the burden falls on them to show that the income distribution would have widened more in the absence of government activities. We conclude that a release of government-employed labor inputs to the private sector would be growth-enhancing.
|Item Type:||MPRA Paper|
|Original Title:||Federal, State, and Local Governments: Evaluating their Separate Roles in US Growth|
|Keywords:||Economic Growth, Federal Government, State Government, Local Government, County-Level Data, Metro and Non-Metro Counties, Income Distribution, Equity|
|Subjects:||E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, Macroeconomic Policy, and General Outlook > E62 - Fiscal Policy
O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O18 - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
H - Public Economics > H5 - National Government Expenditures and Related Policies > H50 - General
O - Economic Development, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O40 - General
H - Public Economics > H7 - State and Local Government; Intergovernmental Relations > H70 - General
O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O11 - Macroeconomic Analyses of Economic Development
O - Economic Development, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O43 - Institutions and Growth
O - Economic Development, Technological Change, and Growth > O5 - Economywide Country Studies > O51 - U.S.; Canada
R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R1 - General Regional Economics > R11 - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
|Depositing User:||Daniel Levy|
|Date Deposited:||01. Feb 2009 15:24|
|Last Modified:||14. Feb 2013 01:19|
Agel, J., Lindh, T., & Ohlsson, H. (1997). Growth and the public sector: a critical review essay. European Journal of Political Economy, 13 (1), 33-52.
Akai, N., & Sakata, M. (2002). Fiscal decentralization contributes to economic growth. Journal of Urban Economics, 52 (1), 93-108.
Aschauer, D. A. (1989). Is public expenditure productive? Journal of Monetary Economics, 24 (2), 177-200.
Atkinson, A. B. (1995). The welfare state and economic performance. National Tax Journal, 48 (2), 171-198.
Baldacci, E., Hillman, A., & Kojo, N. (2004). Growth, governance, and fiscal policy transmission channels in low-income countries. European Journal of Political Economy, 20 (3), 517-549.
Barro, R. J., & Sala-i-Martin, X. (1992). Convergence. Journal of Political Economy, 100 (2), 223–251.
Baum, C.F., Schaffer, M.E., & Stillman, S. (2003). Instrumental variables GMM: estimation and testing. The Stata Journal, 3 (1), 1-31.
Brueckner, J. (2006). Fiscal federalism and economic growth. Journal of Public Economics, 90 (10-11), 2107-2120.
Buchanan, J., & Wagner, R. (1977). Democracy in deficit: the political legacy of lord Keynes. New York: Academic Press.
Caselli, F., Esquivel, G., & Lefort, F. (1996). Reopening the convergence debate: a new look at cross-country growth empirics. Journal of Economic Growth, 1 (3), 363–390.
Carrion-i-Silvestri, J. L., Espasa, M., & Mora, T. (2008). Fiscal decentralization and economic growth in Spain. Public Finance Review, 36 (2), 194-218.
Davoodi, H., & Zou, H. (1998). Fiscal decentralization and economic growth: a cross-county study. Journal of Urban Economics, 43 (2), 244-257.
Deaton, A., (1997). The analysis of household surveys: microeconomic approach to development policy. Baltimore: Johns Hopkins University Press.
Evans, P., (1997). Consistent estimation of growth regressions (Manuscript). http://economics.sbs.ohiostate.edu/pevans/pevans.html.
Evans, P. & Karras, G. (1994). Are government activities productive? evidence from a panel of US states. Review of Economics and Statistics, 76 (1), 1–11.
Garcia-Milà, T., McGuire, T. J., & Porter, R. H. (1996). The effect on public capital in state-level production functions reconsidered. Review of Economics and Statistics, 78 (1), 177-180.
Higgins, M. J., Levy, D., & Young, A. T. (2006). Growth and convergence across the US: evidence from county-level data. Review of Economics and Statistics, 88 (4), 671-681.
Higgins, M. J., Young, A. T., & Levy, D. (2009). Robust correlates of US county-level growth. Applied Economics Letters, (Forthcoming).
Hillman, A. (2003). Public finance and public policy: responsibilities and limitations of government. New York: Cambridge University Press.
Holtz-Eakin, D. (1994). Public-sector capital and the productivity puzzle. Review of Economics and Statistics, 76 (1), 12-21.
Lynde, C., & Richmond, J. (1993). Public capital and total factor productivity. International Economic Review, 34 (2), 401-413.
Martinez-Vazquez, J. and McNab, R. M. (2003). Fiscal decentralization and economic growth. World Development, 31 (9), 1597-1616.
Oates, W. E. (1972). Fiscal federalism. New York: Harcourt Brace Jovanovic.
Oates, W. E. (1999). An essay on fiscal federalism. Journal of Economic Literature, 37 (3), 1120-1149.
Rappaport, J. (1999). Local growth empirics. CID Working Paper #23, Harvard University.
Rappaport, J. (2005). How does labor mobility affect income convergence? Journal of Economic Dynamics and Control, 29 (3), 567-581.
Rappaport, J., & Sachs, J. D. (2003). The United States as a coastal nation. Journal of Economic Growth, 8 (1), 5–46.
Sala-i-Martin, X. (1997a). I just ran two million regressions. American Economic Review, 87 (2), 178-193.
Sala-i-Martin, X. (1997b). I just ran four million regressions. NBER Working Paper No. 6252.
Sargan, D. (1964). Wages and prices in the United Kingdom: a study in econometric methodology. In Econometrics analysis for national economic planning. London: Butterworths.
Shea, J. (1997). Instrument relevance in multivariate linear models: a simple measure. Review of Economics and Statistics, 79 (1), 348 – 352.
Shioji, E. (2001). Public capital and economic growth: a convergence approach. Journal of Economic Growth, 6 (3), 205-227.
Slemrod, J. (1995). What do cross-country studies teach us about government involvement, prosperity, and economic growth. Brookings Papers on Economic Activity, 26 (2), 373–431.
Staiger, D., & Stock, J. H. (1997). Instrumental variables regression with weak instruments. Econometrica, 65 (3), 557–586.
Stansel, D. (2005). Local decentralization and local economic growth: a cross-sectional examination of US metropolitan areas. Journal of Urban Economics, 57 (1), 55-72.
Stock, J.H., & Yogo, M. (2002). Testing for weak instruments in linear regression. In Identification and Inference in Econometric Models: Essays in Honor of Thomas J. Rothenberg. Cambridge: Cambridge University Press.
Wooldridge, J. (2001). Econometric Analysis of Cross Section and Panel Data. Boston: The MIT Press.
Xie, D., Zou, H., & Davoodi, H. (1999). Fiscal decentralization and economic growth in the United States. Journal of Urban Economics, 45 (2), 228-239.
Young, A. T., Higgins, M. J., & Levy, D. (2009). Sigma convergence versus beta convergence. Journal of Money, Credit, and Banking, 40 (5), 1083-1094.
Zhang, T. & Zou, H. (1998). Fiscal decentralization, public spending, and economic growth in China. Journal of Public Economics, 67 (2), 221-240.