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U.S. State Fiscal Policy and Natural Resources

Alexander James

No 126, OxCarre Working Papers from Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford

Abstract: An analytical framework predicts that, in response to an exogenous increase in resource based government revenue, a benevolent government will partially substitute away from taxing income, increase spending and save. Forty-two years of U.S. state-level data are consistent with this theory. Specifically, a baseline fixed effects model predicts that a 1% point increase in resource revenue results in a .20% point decrease in non-resource revenue, a .50% point increase in spending and a .30% point increase in savings. These results are generally robust to alternative model specifications and the instrumentation of resource-based government revenue. Interaction effects reveal some asymmetry in the fiscal response to revenue shocks according to state political leanings.

Keywords: Severance Tax; Fiscal Policy; Natural Resources (search for similar items in EconPapers)
JEL-codes: Q38 H20 (search for similar items in EconPapers)
Date: 2013-10-29
New Economics Papers: this item is included in nep-pbe and nep-pub
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Related works:
Journal Article: US State Fiscal Policy and Natural Resources (2015) Downloads
Working Paper: U.S. State Fiscal Policy and Natural Resources (2014) Downloads
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