Are State-local Government Expenditures Converging? New Evidence Based on Sequential Unit Root Tests

Research output: Contribution to journalArticle

Abstract

Large and persistent gaps in subnational public expenditure have important implications regarding growth, equity, and migration. In this context, we revisit the question of expenditure convergence across the American states to provide more nuanced evidence than found by a small number of previous studies. We employ a methodology due to Smeekes (Bootstrap sequential tests to determine the stationary units in a panel, 2011) that sequentially tests for unit roots in pairwise (real per capita) expenditure gaps based on user specified fractions. In a panel of 48 combined state–local government units (1957–2008), we found that expenditures on highways, sanitation, utility, and education were far more convergent than expenditures on health and hospitals, police and fire protection, and public welfare. There was little evidence of “club convergence” based on the proportion of intraregional convergent pairs. Several historically high-grant receiving states showed relatively strong evidence of convergence. Our results bode well for future output convergence and opportunities for Tiebout-type migration across jurisdictions. They also imply a diminished role for public infrastructure and education spending in business location choices over time and a mixed role for federal grants in inducing convergence.

Details

Authors
Organisations
External organisations
  • University of Texas
  • Deakin University
Research areas and keywords

Subject classification (UKÄ) – MANDATORY

  • Economics
  • Public Administration Studies

Keywords

  • State and local governments, Regional economics, Convergence, Sequential unit root tests
Original languageEnglish
Pages (from-to)373-403
JournalEmpirical Economics
Volume53
Issue number2
Early online date2016 Aug 18
Publication statusPublished - 2017 Sep
Publication categoryResearch
Peer-reviewedYes