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Economic Impact Of Government Spending: A 50-State Analysis
Notes
11 Spending by all governments in the United States totaled $1.66 billion in 1902, which is 7.7 percent of gross national product that year. See U.S. Department of Commerce, Historical Statistics of the United States, Colonial Times to 1970 (Washington, DC: Government Printing Office, 1975), pp. 224, 1120. back2 Historical Statistics of the United States, pp. 1126-27; U.S. Bureau of the Census, Government Finances: 1989-90 (Washington, DC: Government Printing Office, 1991), p. 2. back
3 U.S. Bureau of the Census, Governmental Finances in 1979-80 (Washington, DC: Government Printing Office, 1981), p. 30; and Government Finances: 1989-90, p. 2. back
4 Throughout this study, current dollars are adjusted to dollars of constant purchasing power by use of the consumer price index for all urban consumers, compiled by the U.S. Department of Labor, Bureau of Labor Statistics. back
5 Excluding some business operations of state and local governments such as utilities and liquor stores, the general expenditures of government grew during the decade by 30.5 percent on a real per capita basis. Over the same period, per capita personal income grew 23.7 percent and per capita personal spending grew about the same, 23.0 percent. The use of alternative price indices would show slightly different results, but still with more rapid growth for government spending than for overall economic activity. Local and state government spending grew at about the same rate. back
6 All spending data are derived from the U.S. Bureau of the Census, 1981 or 1991. back
7 Anne O. Krueger, “The Political Economy of the Rent-Seeking Society," American Economic Review, 64, June 1974; and James M. Buchanan, Robert D. Tollison and Gordon Tullock, eds., Toward a Theory of the Rent-Seeking Society (Ann Arbor: University of Michigan Press, 1980). back
8 Richard Vedder and Lowell Gallaway, Out of Work: Unemployment and Government in 20th-Century America (Oakland, CA: Independent Institute, 1992). back
9 For a review of the literature and empirical estimates, see John A. Tatom, "Public Capital and Private Sector Performance," Federal Reserve Bank of St. Louis Review, May/June 1991, pp. 3-15. back
10 See Wendell Cox and Samuel A. Brunelli, "America’s Protected Class II: The Widening Public/Private Pay Gap," in Serving the States (Washington, DC: American Legislative Exchange Council, 1992), pp. 209-67. back
12 This was a decrease of 10.7 percent in real private sector pay per employee and an increase of 11.6 percent in state employee pay. back
14 $15,108 multiplied by 7.42 percent. back
15 Table C-2 in the appendix categorizes states by the rate of income growth during the 1980s. Table C-3 in the appendix shows actual and potential income growth percentages during the 1980s for each state. back
16 $15,108 multiplied by 0.32 percent. back
17 This is the "factor price equalization theorem." back
18 See Robert Genetski and Young Chin, "The Impact of State and Local Taxes on Economic Growth," Harris Bank, Chicago, 1978; Richard Vedder, "State and Local Economic Development Strategy: A Supply-Side Approach," staff study for the Joint Economic Committee of Congress, 1981; Vedder, "State and Local Taxes and Economic Performance," Southern Business & Economic Journal, 15, October 1991; L. J. Helms, "The Effect of State and Local Taxes on Economic Growth: A Time-Series-Cross-Section Approach," Review of Economics and Statistics, 67, November 1985; Bruce L. Benson and Ronald N. Johnson, "The Lagged Impact of State and Local Taxes on Economic Activity and Political Behavior," Economic Inquiry, 24, July 1986; Victor Canto and Robert Webb, "The Effect of State Fiscal Policy on State Relative Economic Performance," Southern Economic Journal, 54, July 1987; and Gerald Scully, "How State and Local Taxes Affect Economic Growth," National Center for Policy Analysis, NCPA Policy Report No. 161, April 1991. back
19 See Michael Wasylenko and Therese McGuire, "Jobs and Taxes: The Effect of Business Climate on States’ Employment Growth Rates," National Tax Journal, 38, December 1985.back
20 See Richard Cebula, "Local Government Policies and Migration: An Analysis for SMSAs in the United States, 1965-1970," Public Choice, 17, Fall 1974; and William A. Niskanen, "The Case for a New Fiscal Constitution," Journal of Economic Perspectives, 6, Spring 1992. back
21 See Dennis W. Carlton, "The Location and Employment Choice of New Firms: An Econometric Model with Discrete and Continuous Endogenous Variables," Review of Economics and Statistics, 65, August 1983; Robert Premus, "Location of High Technology Firms and Economic Development," staff study for Joint Economic Committee of Congress (Washington, DC: Government Printing Office, 1983); James A. Papke and Leslie E. Papke, "Measuring Differential State-Local Tax Liabilities and Their Implications for Business Investment Location," National Tax Journal, 38, September 1986; and Timothy J. Bartik, "Small Business Start-Ups in the United States: Estimates of the Effects of Characteristics of States," Southern Economic Journal, 55, April 1989. back
22 Helms, "The Effect of State and Local Taxes on Economic Growth" and Alaeddin Mofidi and Joe A. Stone, "Do State and Local Taxes Affect Economic Growth?" Review of Economics and Statistics, 72, November 1990. back
23 For the most comprehensive survey of this literature, see Robert Moffit, "Incentive Effects of the U.S. Welfare System: A Review," Journal of Economic Literature, 30, March 1992, p. 56. back
24 Lowell Gallaway, Richard Vedder and Robert Lawson, "Why People Work: An Examination of Interstate Variations in Labor Force Participation," Journal of Labor Research, 12, Winter 1991. back
25 Helms, "The Effect of State and Local Taxes on Economic Growth" and Mofidi and Stone, "Do State and Local Taxes Affect Economic Growth?" back
26 Eric Hanushek, "The Economics of Schooling," Journal of Economic Literature, 24, September 1986, and "The Impact of Differential Expenditures on School Performance," Educational Research, 18, May 1989. back
27 James S. Coleman, Research for Tomorrow’s Schools (New York: Macmillan, 1969); James S. Coleman, Sally Kilgore and Thomas Hoffer, High School Achievement: Public and Private Schools Compared (New York: Basic Books, 1982); James S. Coleman, Public and Private High Schools: The Impact of Communities (New York: Basic Books, 1987); and John Chubb and Terry Moe, Politics, Markets and America’s Schools (Washington, DC: Brookings Institution, 1990). back
28 Luther Boggs, Richard Vedder and Alfred Eckes, "Testing and Educational Achievement: Ohio and the Nation," research paper, Contemporary History Institute, Athens, OH, 1992.back