State Government Expenditure Determinants and Tax Revenue Determinants Revisited

Abstract

The primary aim of the research was to test the general hypothesis that many institutional and political variables affect fiscal outcomes; that the preferences of public officials, and the decision processes used to act on those preferences, matter. State government data (state only, not state and local) from 1980, 1985, and 1990 were used to specify state tax revenue and expenditure models. A previous (Merrifield, 1991) state tax revenue model identified many significant institutional and political variables, but it was based only on 1985 data (49 observations). The larger data set (147 observations), including better data for some of the variables, indicated that most of Merrifield's (1991) findings are robust. The state expenditure models facilitated a second test of the general institutional and political variable hypothesis, as well as the hypotheses about specific variables. The expenditure model also facilitated comparisons of expenditure and tax determinants, and comparisons with results published in the literature. Though there are some noteworthy differences between the expenditure and tax models, the expenditure models also supported many of the institutional and political variable hypotheses.