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The tax-spending nexus : evidence from a panel of US state–local governments

journal contribution
posted on 2011-05-01, 00:00 authored by Joakim WesterlundJoakim Westerlund, S Mahdavi, F Firoozi
We re-examine the tax-spending nexus using a panel of 50 US state–local government units between 1963 and 1997. We find that, unlike tax revenues, expenditures adjust to revert back to a long-term equilibrium relationship. The evidence on the short-term dynamics is also consistent with the tax-and-spend hypothesis. One implication of this finding is that the size of the government at the state–local level is not determined by expenditure demand, but rather by resource supply. This is consistent with the fact that many US state and local governments operate under constitutional or legislative limitations that seek to constrain deficits.

History

Journal

Economic modelling

Volume

28

Pagination

885 - 890

Location

Amsterdam, The Netherlands

ISSN

0264-9993

eISSN

1873-6122

Language

eng

Publication classification

C1.1 Refereed article in a scholarly journal

Copyright notice

2010, Elsevier B.V.

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