On the Relationship between Mobility, Population Growth, and Capital Spending in the United States

70 Pages Posted: 25 Apr 2011

See all articles by Marco Bassetto

Marco Bassetto

Federal Reserve Bank of Chicago

Leslie McGranahan

Federal Reserve Bank of Chicago

Multiple version iconThere are 2 versions of this paper

Date Written: April 2011

Abstract

In this paper, we investigate the relationship between public capital spending and population dynamics at the state level. Empirically, we document two robust facts. First, states with faster population growth do not spend more (per capita) to accommodate the needs of their growing population. Second, states whose population is more likely to leave do tend to spend more per capita than states with low gross emigration rates. To interpret these facts, we introduce an explicit, quantitative political-economy model of government spending determination, where mobility and population growth generate departures from Ricardian equivalence by shifting some of the costs and benefits of public projects to future residents. The magnitude of the empirical response of capital spending to mobility is at the upper end of what can be explained by the theory with a plausible calibration. In the model, more mobile voters favor more spending because the maturity of states' debt is very long term and costs are shifted into the future more than benefits.

Suggested Citation

Bassetto, Marco and McGranahan, Leslie, On the Relationship between Mobility, Population Growth, and Capital Spending in the United States (April 2011). NBER Working Paper No. w16970, Available at SSRN: https://ssrn.com/abstract=1820082

Marco Bassetto (Contact Author)

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
Chicago, IL 60604
United States

Leslie McGranahan

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
Chicago, IL 60604
United States
312-322-5023 (Phone)
312-322-2357 (Fax)

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