Local Government Taxes and Long-Run Economic Growth in U.S. Metropolitan Areas

16 Pages Posted: 12 Dec 2008

See all articles by Dean Stansel

Dean Stansel

Southern Methodist University (SMU) - Bridwell Institute for Economic Freedom

Mushfiq Swaleheen

Independent

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

Stansel, Dean and Swaleheen, Mushfiq, Local Government Taxes and Long-Run Economic Growth in U.S. Metropolitan Areas (December 11, 2008). Available at SSRN: https://ssrn.com/abstract=1314881 or http://dx.doi.org/10.2139/ssrn.1314881

Dean Stansel (Contact Author)

Southern Methodist University (SMU) - Bridwell Institute for Economic Freedom ( email )

Edwin L. Cox School of Business
Dallas, TX 75275-0333
United States

HOME PAGE: http://www.smu.edu/cox/Our-People-and-Community/Faculty/Dean-Stansel

Mushfiq Swaleheen

Independent ( email )

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