Federal, State, and Local Governments: Do Any of Them Promote Growth?

35 Pages Posted: 11 Oct 2007

See all articles by Matthew John Higgins

Matthew John Higgins

University of Utah - Department of Entrepreneurship & Strategy; National Bureau of Economic Research (NBER); Max Planck Institute for Innovation and Competition

Andrew T. Young

Texas Tech University - Rawls College of Business

Daniel Levy

Bar-Ilan University - Department of Economics; Emory University - Department of Economics; Rimini Center for Economic Analysis

Date Written: September 5, 2007

Abstract

We use US county level data (3,058 observations) from 1970 to 1998 to explore the relationship between economic growth and the extent of government employment at three levels: federal, state and local. We find that increases in federal, state and local government employments are all negatively associated with economic growth. We find no evidence that government is more efficient at more decentralized levels - and thus reject Oates' (1972) "decentralization theorem." 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. For those who justify government activities in terms of equity concerns - perhaps even trading off economic growth for equity - the burden falls on them to show that the income distribution would have widened significantly more in the absence of government activities. We conclude that a release of government-employed labor inputs to the private sector would be growth-enhancing.

Keywords: Economic Growth, Federal Government, State Government, Local Government, and County-Level Data

JEL Classification: O40, O11, O18, O51, R11, H50, H70

Suggested Citation

Higgins, Matthew John and Young, Andrew T. and Levy, Daniel, Federal, State, and Local Governments: Do Any of Them Promote Growth? (September 5, 2007). Available at SSRN: https://ssrn.com/abstract=1020450 or http://dx.doi.org/10.2139/ssrn.1020450

Matthew John Higgins (Contact Author)

University of Utah - Department of Entrepreneurship & Strategy ( email )

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National Bureau of Economic Research (NBER) ( email )

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Max Planck Institute for Innovation and Competition ( email )

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Andrew T. Young

Texas Tech University - Rawls College of Business ( email )

Lubbock, TX 79409
United States

Daniel Levy

Bar-Ilan University - Department of Economics ( email )

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Israel
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+972 3 738-4034 (Fax)

HOME PAGE: http://econ.biu.ac.il/en/levy

Emory University - Department of Economics ( email )

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Rich Building
Atlanta, GA 30322-0001
United States

HOME PAGE: http://economics.emory.edu/home/people/faculty/Levydaniel.html

Rimini Center for Economic Analysis ( email )

Wilfrid Laurier University
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Waterloo, Ontario N2L3C5
Canada

HOME PAGE: http://rcea.org/

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