Scandinavian Working Papers in Economics

Working Papers in Economics,
University of Gothenburg, Department of Economics

No 378: The Tax-Spending Nexus: Evidence from a Panel of US State- Local Governments

Joakim Westerlund () and Saeid Mahdavi
Additional contact information
Joakim Westerlund: Department of Economics, School of Business, Economics and Law, Göteborg University, Postal: Box 640, SE 40530 GÖTEBORG
Saeid Mahdavi: University of Texas at San Antonio, Postal: United States

Abstract: We re-examine the tax-spending nexus using a panel of 50 US state-local government units between 1963 and 1997. We find that, unlike tax revenues, expenditures adjust to revert back to a long-term equilibrium relationship. The evidence on the short-term dynamics is also consistent with the tax-and-spend hypothesis. One implication of this finding is that the size of the government at the state-local level is not determined by expenditure demand, but rather by resource supply. This is consistent with the fact that many US state and local governments operate under constitutional or legislative limitations that seek to constrain deficits.

Keywords: Tax-spend; State and local government; Public finance; Panel unit root; Panel cointegration

JEL-codes: C33; H71; H72

18 pages, September 11, 2009

Full text files

21048 HTML file 

Download statistics

Questions (including download problems) about the papers in this series should be directed to Ann-Christin Räätäri Nyström ()
Report other problems with accessing this service to Sune Karlsson ().

This page generated on 2024-02-05 17:11:22.