Federal, State, and Local Governments: Evaluating Their Separate Roles in US Growth
Matthew John Higgins
Georgia Institute of Technology - Scheller College of Business; National Bureau of Economic Research (NBER)
Andrew T. Young
West Virginia University - College of Business and Economics
Bar-Ilan University - Department of Economics; Emory University - Department of Economics; Rimini Center for Economic Analysis
Emory Public Law Research Paper No. 07-4
Emory Law and Economics Research Paper No. 07-5
Bar Ilan Univ. Pub Law Working Paper No. 06-8
We use new US county level data (3,058 observations) from 1970 to 1998 to explore the relationship between economic growth and the size of government at three levels: federal, state and local. Using 3SLS-IV estimation we find that the size of federal, state and local government all either negatively correlate with or are uncorrelated with economic growth. We find no evidence that government is more efficient at more or less decentralized levels. Furthermore, while we cannot separate out the productive and redistributive services of government, we document that the county-level income distribution became slightly wider from 1970 to 1998. Our findings suggest that a release of government-employed labor inputs to the private sector would be growth-enhancing.
Number of Pages in PDF File: 26
Keywords: Economic Growth, Federal Government, State Government, Local Government, Fiscal Federalism, Oates' Decentralization Theorem, County-Level Data
JEL Classification: O40, O11, O18, O51, R11, H50, H70
Date posted: December 4, 2006
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