The spillover effects of state spending |
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| Affiliation: | 1. School of Economics and Management, Fuzhou University, Fuzhou 350116, China;2. School of Business, Xiangtan University, Xiangtan 411105, China;1. Department of Economics, Lancaster University, Lancaster LA1 4YW, UK;2. Department of Economics, University of Warwick, Coventry CV4 7AL, UK;3. CAGE, University of Warwick, Coventry CV4 7AL, UK;4. Centre for Economic Policy Research (CEPR), 77 Bastwick Street, London EC1V 3PZ, UK;5. Centre for Business Taxation, Oxford University, Park End Street, Oxford OX1 1HP, UK;6. SOSE — Soluzione per il Sistema Economico S.p.A, Via Mentore Maggini, 00143 Rome, Italy |
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| Abstract: | This paper estimates the extent to which state spending is influenced by the spending of neighboring states, examining several different metrics of neighborliness in order to better identify the channels for interstate spillovers. It improves on previous studies by taking advantage of exogenous shocks to state medical spending to abstract from correlated local conditions and by allowing for spatial-autocorrelation. Focusing on mandated increases in medical spending, the analysis shows that each dollar of state spending causes spending in neighboring states to increase by almost 90 cents. The most predictive measure of neighborliness is the degree of population mobility between states, suggesting that rational concerns about adverse migration may drive the interdependence of state spending policy. |
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