Government spending and economic activity: Regression discontinuity evidence from voting on renewals of tax levies

David Brasington and Marios Zachariadis

University of Cyprus Working Papers in Economics from University of Cyprus Department of Economics

Abstract: We estimate the impact of plausibly exogenous changes in taxes and government spending on income by utilizing regional data and a regression discontinuity design. More specifically, we identify an exogenous cut in local taxes accompanied by an equivalent reduction in local government spending by exploiting voting on renewals of tax levies of local governments in Ohio from 1991 to 2018, using a unique database that tracks city and village-level incomes and local election outcomes over time for the complete census of cities and villages in the state. We find that such “balanced budget†reductions in taxes and spending cause a large drop in local incomes that persists for two or three years before petering out. Importantly, this effect of local tax-financed government spending is present in locations with above average income inequality but not in those with low income inequality. Our results regarding the effect of locally tax-financed government spending on income are suggestive of the importance of mechanisms related to the prevalence of income heterogeneity and liquidity constrained agents in the local economy.

Keywords: Fiscal policy; balanced budget; redistribution; inequality (search for similar items in EconPapers)
JEL-codes: E62 H72 R11 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2021-11, Revised 2020-12-06
New Economics Papers: this item is included in nep-mac, nep-pub and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://papers.econ.ucy.ac.cy/RePEc/papers/06-2021.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ucy:cypeua:06-2021

Access Statistics for this paper

More papers in University of Cyprus Working Papers in Economics from University of Cyprus Department of Economics
Bibliographic data for series maintained by ().