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

Higgins, Matthew and Young, Andrew and Levy, Daniel (2009): Federal, State, and Local Governments: Evaluating their Separate Roles in US Growth.

Abstract

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
• Language: English
• 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, and General Outlook > E62 - Fiscal Policy; O - Economic Development, Innovation, 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, Innovation, 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, Innovation, Technological Change, and Growth > O1 - Economic Development > O11 - Macroeconomic Analyses of Economic Development; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O43 - Institutions and Growth; O - Economic Development, Innovation, 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

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