Abstract
Real state spending per capita has increased fourfold in North Carolina since 1970. Three sources of revenue allowed for this increase: (1) tax increases, (2) increased debt, and (3) increased federal transfers. The latter two revenue sources have served to mask the true cost of increased spendingthat is, they have created a fiscal illusion by transferring costs to future generations of workers and by dispersing costs across all federal taxpayers and debt holders. We argue that despite recent reforms, North Carolinas long-run spending trend is unsustainable. To return the state to long-term fiscal solvency, reforms must likewise be focused on long-term institutional incentives. To be competitive with other states, North Carolinas taxes, regulations, and property rights protections must all be competitive.
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