Local Government Taxes and Long-Run Economic Growth in U.S. Metropolitan Areas
16 Pages Posted: 12 Dec 2008
Date Written: December 11, 2008
Abstract
This paper explores the factors that contribute to long-run economic growth in U.S. metropolitan areas, with particular attention given to government finance variables. Unlike previous work that examines only a sub-sample of the largest areas, this paper uses a new comprehensive data set for all U.S. metropolitan areas. We use panel data and metro fixed effects regression. We found a statistically significant negative relationship between increases in two sources of local government revenue (used to fund an equal increase in spending on public welfare) and subsequent growth in real per capita income, supporting previous findings that taxes have a negative impact on income growth. We also found that replacing welfare spending with higher spending on education and "other expenditures" was positively associated with employment growth, and found similar results for the relationship between police and highway spending and per capita income growth.
Keywords: economic growth, taxes, government spending, metro areas
JEL Classification: H7, O40, R11, R51
Suggested Citation: Suggested Citation
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