Working Paper: NBER ID: w3032
Authors: Anne C. Case; James R. Hines Jr.; Haney S. Rosen
Abstract: This paper formalizes and tests the notion that state governments' expenditures depend on the spending of similarly situated states. We find that even after allowing for fixed state effects, year effects, and common random effects between neighbors, as state government's level of per capita expenditure is positively and significantly affected by the expenditure levels of its neighbors. Ceteris paribus, a one dollar increase in a state's neighbors' expenditures increases its own expenditure by over 70 cents.
Keywords: Fiscal policy; State expenditure; Intergovernmental competition
JEL Codes: H70; H72
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Neighbors' expenditures (D12) | State expenditures (H75) |
| Neighbors' expenditures (D12) | Other variables' effects on State expenditures (H76) |