* opinions expressed are the authors' and are not a reflection of the policies of the International Monetary Fund or the University of Michigan. authors are grateful to Robin Barlow and Harvey E. Brazer who commented on an early draft of this paper. 1 E.g., Glenn W. Fisher, of State and Local Government Expenditures: Preliminary Analysis, National Tax Journal, December 1961, pp. 349-55; Fisher, Interstate Variation in State and Local Government Expenditure, National Tax Journal, March 1964, pp. 55-74; Ernest Kurnow, of State and Local Expenditures Reexamined, National Tax Journal, September 1963, pp. 252-255; Seymour Sacks and Robert Harris, The Determinants of State and Local Government Expenditures and Intergovernmental Flows of Funds, National Tax Journal, March 1964, pp. 75-85; Edward F. Renshaw, A Note on the Effect of Aid to Education, Journal of Political Economy, April 1960, pp. 170-74; Werner Z. Hirsch, Expenditure Implications of Metropolitan Growth and Consolidation, Review of Economics and Statistics, August 1959, pp. 232-41; Niles M. Hansen, The Structure and Determinants of Local Public Investment Expenditures, Review of Economics and Statistics, May 1965, pp. 150-62; Harvey E. Brazer, City Expenditures in the United States, Occasional Paper 66, National Bureau of Economic Research, 1959. For a more general approach, see I. Adelman and C. Morris, A Factor Analysis of the Interrelationships between Social and Political Variables and Per Capita National Product, Quarterly Journal of Economics, February 1965, pp. 555-71. influencing the short run expenditure decisions of state governments. Specifically, we have attempted to explain the annual per cent changes in total and capital expenditures of states by means of economic, demographic, and political variables. We chose to analyze the expenditure changes of state government rather than changes in state and local governments taken together on grounds that it is easier to analyze the expenditure acts of a single decision-making unit than it is to analyze the collective expenditure acts of state and local governments.