Ranking State Fiscal Structures using Theory and Evidence
Neil Bania () and
Joe Stone ()
University of Oregon Economics Department Working Papers from University of Oregon Economics Department
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.
JEL-codes: E62 H2 H4 H7 (search for similar items in EconPapers)
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Journal Article: Ranking state fiscal structures using theory and evidence (2008)
Working Paper: Ranking State Fiscal Structures using Theory and Evidence (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:ore:uoecwp:2007-11
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