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

Westerlund, Joakim LU and Mahdavi, Saeid (2017) In Empirical Economics 53(2). p.373-403
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... (More)
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. (Less)
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author
organization
publishing date
type
Contribution to journal
publication status
published
subject
keywords
State and local governments, Regional economics, Convergence, Sequential unit root tests
in
Empirical Economics
volume
53
issue
2
pages
373 - 403
publisher
Physica Verlag
external identifiers
  • scopus:84982273140
  • scopus:84982273140
  • wos:000407847400001
ISSN
0377-7332
DOI
10.1007/s00181-016-1123-3
language
English
LU publication?
yes
id
4359d080-1877-4c5d-ac48-c1e4812a6210
date added to LUP
2016-10-28 11:43:44
date last changed
2018-01-16 13:21:15
@article{4359d080-1877-4c5d-ac48-c1e4812a6210,
  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.},
  author       = {Westerlund, Joakim and Mahdavi, Saeid},
  issn         = {0377-7332},
  keyword      = {State and local governments,Regional economics,Convergence,Sequential unit root tests},
  language     = {eng},
  number       = {2},
  pages        = {373--403},
  publisher    = {Physica Verlag},
  series       = {Empirical Economics},
  title        = {Are State-local Government Expenditures Converging? :  New Evidence Based on Sequential Unit Root Tests},
  url          = {http://dx.doi.org/10.1007/s00181-016-1123-3},
  volume       = {53},
  year         = {2017},
}