The Tax-Spending Nexus: Evidence from a Panel of US State- Local Governments

Joakim Westerlund and Saeid Mahdavi
Additional contact information
Saeid Mahdavi: University of Texas at San Antonio, Postal: United States

No 378, Working Papers in Economics from University of Gothenburg, Department of Economics

Abstract: We re-examine the tax-spending nexus using a panel of 50 US state-local government units between 1963 and 1997. We find that, unlike tax revenues, expenditures adjust to revert back to a long-term equilibrium relationship. The evidence on the short-term dynamics is also consistent with the tax-and-spend hypothesis. One implication of this finding is that the size of the government at the state-local level is not determined by expenditure demand, but rather by resource supply. This is consistent with the fact that many US state and local governments operate under constitutional or legislative limitations that seek to constrain deficits.

Keywords: Tax-spend; State and local government; Public finance; Panel unit root; Panel cointegration (search for similar items in EconPapers)
JEL-codes: C33 H71 H72 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2009-09-11
New Economics Papers: this item is included in nep-pbe and nep-ure
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Citations: View citations in EconPapers (1)

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http://hdl.handle.net/2077/21048 (text/html)

Related works:
Journal Article: The tax-spending nexus: Evidence from a panel of US state-local governments (2011)
Working Paper: The Tax Spending Nexus: Evidence from a Panel of US State-Local Governments (2008)
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