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Do Economic Development Incentives Crowd Out Public Expenditures in U.S. States?

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  • Wang Jia

    (Department of Economics, University of the South, Sewanee, TN, USA)

Abstract

This paper investigates whether economic development incentives (EDI) crowd out public expenditures in U.S. states. Using EDI data from a new database, this paper employs a two-way fixed effect panel framework and generalized method of moments (GMM) approach to account for dynamic features associated with public expenditures. Potential endogeneity of policy variables and problems with unbalanced panels are also addressed. Results show relatively little effect of incentives spending on most public goods expenditures contemporaneously, with negative repercussions beginning to appear in year one. Findings of this paper carry practical importance for policymakers concerning the efficacy of incentives.

Suggested Citation

  • Wang Jia, 2016. "Do Economic Development Incentives Crowd Out Public Expenditures in U.S. States?," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 16(1), pages 513-538, January.
    • Handle: RePEc:bpj:bejeap:v:16:y:2016:i:1:p:513-538:n:12
    DOI: 10.1515/bejeap-2015-0042
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    References listed on IDEAS

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    1. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
    2. Timothy J. Bartik, 2000. "Jobs, Productivity, and Local Economic Development: What Implications Does Economic Research Have for the Role of Government?," Book chapters authored by Upjohn Institute researchers, in: Robert W. Wassmer (ed.),Readings in Urban Economics: Issues and Public Policy, pages 72-122, W.E. Upjohn Institute for Employment Research.
    3. Timothy J. Bartik, 1991. "Who Benefits from State and Local Economic Development Policies?," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number wbsle, November.
    4. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(2), pages 277-297.
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    Cited by:

    1. John Dove & Daniel Sutter, 2018. "Is There a Tradeoff Between Economic Development Incentives and Economic Freedom? Evidence from the US States," The Review of Regional Studies, Southern Regional Science Association, vol. 48(1), pages 55-69, Spring.
    2. Jia Wang & Stephen E. Ellis & Cynthia Rogers, 2018. "Income Inequality and Economic Development Incentives in US States: Robin Hood in Reverse?," The Review of Regional Studies, Southern Regional Science Association, vol. 48(1), pages 93-117, Spring.
    3. Mitchell, Matt & Farren, Michael & Gonzalez, Olivia & Horpedahl, Jeremy, 2019. "The Economics of a Targeted Economic Development Subsidy," Annals of Computational Economics, George Mason University, Mercatus Center, November.

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    More about this item

    Keywords

    economic development incentives; public goods provision; state and local governments;
    All these keywords.

    JEL classification:

    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures

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