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Are state–local government expenditures converging? New evidence based on sequential unit root tests

Mahdavi, Saeid and Westerlund, Joakim 2016, Are state–local government expenditures converging? New evidence based on sequential unit root tests, Empirical economics, vol. 53, pp. 1-31, doi: 10.1007/s00181-016-1123-3.

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Title Are state–local government expenditures converging? New evidence based on sequential unit root tests
Author(s) Mahdavi, Saeid
Westerlund, Joakim
Journal name Empirical economics
Volume number 53
Start page 1
End page 31
Total pages 31
Publisher Springer
Place of publication Berlin, Germany
Publication date 2016-08-18
ISSN 0377-7332
Keyword(s) state and local governments
regional economics
sequential unit root tests
Social Sciences
Social Sciences, Mathematical Methods
Business & Economics
Mathematical Methods In Social Sciences
Summary Large and persistent gaps in subnational public expenditure have important implications regarding growth, equity, and migration. In this context, we revisit the question of expenditure convergence across the American states to provide more nuanced evidence than found by a small number of previous studies. We employ a methodology due to Smeekes (Bootstrap sequential tests to determine the stationary units in a panel, 2011) that sequentially tests for unit roots in pairwise (real per capita) expenditure gaps based on user specified fractions. In a panel of 48 combined state–local government units (1957–2008), we found that expenditures on highways, sanitation, utility, and education were far more convergent than expenditures on health and hospitals, police and fire protection, and public welfare. There was little evidence of “club convergence” based on the proportion of intraregional convergent pairs. Several historically high-grant receiving states showed relatively strong evidence of convergence. Our results bode well for future output convergence and opportunities for Tiebout-type migration across jurisdictions. They also imply a diminished role for public infrastructure and education spending in business location choices over time and a mixed role for federal grants in inducing convergence.
Language eng
DOI 10.1007/s00181-016-1123-3
Field of Research 140399 Econometrics not elsewhere classified
Socio Economic Objective 970114 Expanding Knowledge in Economics
HERDC Research category C1 Refereed article in a scholarly journal
ERA Research output type C Journal article
Copyright notice ©2016, The Authors
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Document type: Journal Article
Collection: Department of Economics
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