 Affiliated faculty Working papers Research notes Conference External links |
||
 |
||
GMM
Estimation of Fiscal Policy Interdependence Across States
URAG Working Paper #04-04
GMM Estimation of Fiscal Policy Interdependence Across States (pdf)
by Mary G. McGarvey and Mary Beth Walker, September 2004
Keywords: state/local fiscal behavior, federal grants, neighbor effects
Estimates of state and local fiscal behavior exhibit three empirical regularities: states' budgetary decisions are influenced by the tax and expenditure policies of their neighbors, demographic variations affect spending patterns, and federal grants have a larger than expected impact on state spending. In this paper, we revisit the classic study of Case, Rosen, and Hines (1993) with new data and new methodology to provide updated empirical evidence on each of these three issues. While our results suggest that neighbor effects remain significant and that federal grants continue to exert a large influence on spending decisions, we find mixed evidence on the influence of demographic variables. Most interestingly, we find dramatic evidence of structural change in the demand for state public expenditures in the 1990's.
Comments and questions regarding this paper may be directed to Mary Beth Walker at prcmbw@langate.gsu.edu.