Government Spending, Shocks, and the Role of Legislature Size: Evidence from the American States*

Abstract

ObjectiveI examine the relationship between legislature size and several components of government spending using a methodology that allows me to estimate how legislature size influences the fiscal response to shocks that are common to all states.MethodI use nonlinear least squares on a panel of 48 of the 50 American states over the period 1978–2008.ResultsI find little evidence that states with larger than average lower or upper chambers experience a larger change in spending per capita in the presence of a shock. I do find a positive relationship between lower chamber size and the first difference of welfare spending per capita, but this increase is partially offset by a negative relationship between upper chamber size and welfare spending.ConclusionThese results are consistent with the interest groups theory of government, which states that larger legislatures can be associated with lobbying and bargaining costs that may have offsetting effects.