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

Higgins, Matthew and Young, Andrew and Levy, Daniel (2006): Federal, State, and Local Governments: Evaluating their Separate Roles in US Growth.

Abstract

We use new US county level data (3,058 observations) from 1970 to 1998 to explore the relationship between economic growth and the size of government at three levels: federal, state and local. Using 3SLS-IV estimation we find that the size of federal, state and local government all either negatively correlate with or are uncorrelated with economic growth. We find no evidence that government is more efficient at more or less decentralized levels. Furthermore, while we cannot separate out the productive and redistributive services of government, we document that the county-level income distribution became slightly wider from 1970 to 1998. Our findings suggest that a release of government-employed labor inputs to the private sector would be growth-enhancing.

• Item Type: MPRA Paper
• Institution: Georgia Institute of Technology, University of Mississippi, and Bar-Ilan University
• Language: English
• Keywords: Economic Growth; Federal Government; State Government; Local Government; and County-Level Data
• Subjects: 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 > O47 - Empirical Studies of Economic Growth ; Aggregate Productivity ; Cross-Country Output Convergence; H - Public Economics > H7 - State and Local Government ; Intergovernmental Relations > H70 - General; 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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