Economic Growth and Tax and Expenditure Limitations

Lindsay N Amiel,Judith I Stallmann,Steven Deller

doi:10.52324/001c.8099

Lindsay N Amiel, Judith I Stallmann + Show 1 more

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https://doi.org/10.52324/001c.8099

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Abstract

Using a Barro-type empirical growth framework we explore the relationship between tax and expenditure limitations (TELs) and the economic growth of U.S. states. The model uses a panel of annual data for the 50 states from 1990 to 2010, with a variable parameter specification coupled with a dynamic Generalized Method of Moments (GMM) panel estimator. In general, more restrictive tax and expenditure limitations can influence the growth process; however, this relationship varies over levels of income and type of TEL

Highlights

There is a long and rich theoretical and empirical literature focused on how government expenditures and fiscal policies influence economic growth
Model A uses an aggregation of the three tax and expenditure limitations (TELs) restrictive indices, where the TEL score for the state was used without reference to its type
This result may be driven by retirement migration to warmer climates which in turn may be contributing to growth in those regions while the states that the retirees leave necessarily have lower income from these sources and lower economic growth due to the loss of this income

Summary

Introduction

There is a long and rich theoretical and empirical literature focused on how government expenditures and fiscal policies influence economic growth. The literature is extremely broad, ranging from the impact of the size of the government, measured by government spending as a share of the economy, on economic growth to the role of taxation on firm location decisions. Public services are a normal good and as the economy grows the demand for services grows. Downward pressures on economic growth are generated if the absolute size of government grows faster than the overall economy over the long term (Bergh and Henrekson, 2011). The rate of growth in the public sector should be slower than the overall growth rate of the economy

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