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

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.

JEL-codes: E62 H2 H4 H7 (search for similar items in EconPapers)
Pages: 31
Date: 2007-06-01
New Economics Papers: this item is included in nep-mac
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http://economics.uoregon.edu/papers/UO-2007-11_Stone_Fiscal.pdf (application/pdf)

Related works:
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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