Year of Publication

2012

Degree Name

Doctor of Philosophy (PhD)

Document Type

Doctoral Dissertation

College

Business and Economics

Department

Economics

First Advisor

Dr. William Hoyt

Second Advisor

Dr. Christopher Bollinger

Abstract

This dissertation is composed of three essays, each examining a unique question relating to the role of intergovernmental transfers in fiscal federalism. Using a panel of the 48 contiguous U.S. states along with recent advances in nonstationary panel and spatial econometric methods this dissertation offers a number of important insights into the workings of intergovernmental transfers and therefore a clearer understanding of the interactions among the different layers of government. The third chapter examines the relationship between intergovernmental revenues from the federal government and intergovernmental expenditures to local governments. As observed by Wildasin (2010), there remains remarkable stability in the ratio of state-tolocal transfers to federal-to-state transfers despite the disparate programs being financed by each. Therefore, the purpose of this essay is to examine the extent to which states serve as a conduit for funds from the federal government to local governments. In particular, the research question asks to what degree do federal transfers stimulate transfers to local governments. The fourth chapter explores the direction of causality between tax revenues and expenditures in answering the four hypotheses set forth in the literature: tax-spend, spend-tax, fiscal synchronization, and institutional separation. Furthermore, along with exploring the role served by intergovernmental transfers within the revenue-expenditure nexus, this essay also examines differences relating to the revenue-expenditure nexus between states with relatively higher debt levels and states with low debt levels, in order to better understand the fiscal causal links favorable for debt accumulation. The purpose of the fifth chapter is to ascertain the effect interstate fiscal interactions on the stimulative effect of grants on state level expenditures. The vast literature on fiscal competition suggests that states do not make decisions in isolation, therefore, spatial econometrics are used to capture spillovers and mimicking behavior across states. Following Boarnet and Glazer (2002), the effect of informational externalities arising from grants awarded to neighboring states are examined as well as the effect of spending spillovers from neighboring states. The results show that the flypaper anomaly (i.e. the stimulative effect of grants greater than a pure income effect) can be explained by interstate fiscal interactions.

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