Local Government Investment and Long-Run Economic Growth

Abstract:     
There has been an international trend towards shifting the provision of public services down to lower levels of government. That decentralization has increased the relative importance of local governments. This paper examines the relationship between spending by those local governments and long-run economic growth. Using a comprehensive data set of all U.S. metropolitan areas, the overall level of local government spending was found to have no significant relationship with economic growth. However, local government investment (capital outlay) and the percent of spending devoted to highways both had a statistically significant positive relationship with growth.

Keywords: economic growth, local government, public investment, metropolitan areas

JEL Classifications: H72, O4, R11

Accepted Paper Series