Ranking state fiscal structures using theory and evidence

Neil Bania and Joe Stone

Journal of Policy Analysis and Management, 2008, vol. 27, issue 4, 751-770

Abstract: This paper offers unique rankings of the extent to which fiscal structures of U.S. states contribute to economic growth. The rankings are novel in two key respects: They are well grounded in established growth theory, in which the effect of taxes depends both on the level of taxes and on the composition of expenditures; and they are derived from actual estimates of the link between fiscal structures and economic growth. Estimates for the latter yield a growth hill, in which the incremental effect of taxes spent on productive services and infrastructure initially rises, reaches a peak, and then declines. Rankings derived from these estimates differ sharply from typical rankings based on levels of taxation alone. Two hypothetical policy experiments highlight both the growth-hill effects of tax investments in productive services and infrastructure and the short- and long-term tradeoffs in attempting to fund strong social services. © 2008 by the Association for Public Policy Analysis and Management.

Date: 2008
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Working Paper: Ranking State Fiscal Structures using Theory and Evidence (2008)
Working Paper: Ranking State Fiscal Structures using Theory and Evidence (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:wly:jpamgt:v:27:y:2008:i:4:p:751-770

DOI: 10.1002/pam.20376

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