Brains, drains, and roads, growth hills: complementarity between public education and infrastructure in a half-century panel of states

Applying a Barro-style model of endogenous growth to a fifty-year panel of states from 1957 to 2007, We examine the extent to which expenditures on public education and infrastructure— together with the taxes necessary to support them— enhance or impede the steady-state growth of state and local economies, as measured by per capita personal income. Our findings suggest that the independent effect of tax expenditures on either public infrastructure or education alone is significantly negative, but the complementary effect of each on the other is positive enough to make their combined effect significantly positive— except at large scales, where we find diseconomies, consistent with the ‘growth hill’ predicted by theory. Policy effects are identified empirically using a recursive structure with very long lags, GMM/instrumental variables, and controls for both fixed and time-varying heterogeneity. Results are robust to a variety of alternative specifications.growth human capital public infrastructure

Monthly household income volatility in the U.S., 1991/92 vs. 2002/03

We investigate changes in monthly income volatility in non-elderly households in the U.S. since the early 1990s. Using the Survey of Income and Program Participation (SIPP), we find that monthly income volatility is highest for lower income households, and that it increased substantially for these households between 1992 and 2003. The increase appears to have its roots in the shift of household income away from relatively stable public assistance (AFDC/TANF) benefits and towards earnings. We subject these findings to sensitivity analyses and find similar results. We also find increases in volatility among households with incomes above the poverty line, but these findings are less robust in the face of some sensitivity analyses.poverty, income volatility, income assistance, welfare reform

Ranking State Fiscal Structures using Theory and Evidence

taxes growth infrastructure state rankings

U.S. air passenger service: a taxonomy of route networks, hub locations, and competition

In this paper, we analyze the service provided by the 13 largest U.S. passenger airlines to the 100 most populous U.S. metropolitan areas in 1989. We classify the route systems by their nature and geographical extent using a variety of measures based on route-level data. We then identify individual airline hub locations and derive and calculate several measures of the extent of competition both on individual routes and at the airports in our sample. The results show the wide diversity of route networks that existed in the airline industry in 1989--a phenomenon that may help to explain the failure of several major carriers since then.Airlines

The determinants of airport hub locations, service, and competition

Although the airline industry has been studied extensively since passage of the Airline Deregulation Act of 1978, relatively little effort has gone into examining how hub location affects the level of service and degree of competition found at airports in the system. To help close this gap, we investigate the geographic distribution of airline hub operations, the level of service, and the extent of competition at 112 major U.S. airports, extending previous work by Bauer (1987) and Butler and Huston (1989). Our key innovation is that we derive our measures of service and competition from indicator matrices that describe each airline's route system.Airlines

Brains, drains, and roads, growth hills: complementarity between public education and infrastructure in a half-century panel of states

Applying a Barro-style model of endogenous growth to a fifty-year panel of states from 1957 to 2007, We examine the extent to which expenditures on public education and infrastructure— together with the taxes necessary to support them— enhance or impede the steady-state growth of state and local economies, as measured by per capita personal income. Our findings suggest that the independent effect of tax expenditures on either public infrastructure or education alone is significantly negative, but the complementary effect of each on the other is positive enough to make their combined effect significantly positive— except at large scales, where we find diseconomies, consistent with the ‘growth hill’ predicted by theory. Policy effects are identified empirically using a recursive structure with very long lags, GMM/instrumental variables, and controls for both fixed and time-varying heterogeneity. Results are robust to a variety of alternative specifications

Public Infrastructure, Education, and Economic Growth: Region-Specific Complementarity in a Half-Century Panel of States

We find region-specific complementarity between investments in public infrastructure and education, both k-12 and postsecondary. The complementarity helps to explain how regions capture returns to investments in education even when residents are mobile, and is strong enough for the effect of tax-financed expenditures on either public infrastructure or education to be significantly positive when spending on the other is high, even though the independent effect of either one is negative. Effects are identified using a recursive structure, very long lags, GMM-instrumental variables, and multiple controls for heterogeneity. Estimates are robust across identification strategies, estimators, and instruments

Public Infrastructure, Education, and Economic Growth: Region-Specific Complementarity in a Half-Century Panel of States

We find region-specific complementarity between investments in public infrastructure and education, both k-12 and postsecondary. The complementarity helps to explain how regions capture returns to investments in education even when residents are mobile, and is strong enough for the effect of tax-financed expenditures on either public infrastructure or education to be significantly positive when spending on the other is high, even though the independent effect of either one is negative. Effects are identified using a recursive structure, very long lags, GMM-instrumental variables, and multiple controls for heterogeneity. Estimates are robust across identification strategies, estimators, and instruments

Ranking State Fiscal Structures using Theory and Evidence

30 p.This paper offers unique rankings of the extent to which fiscal structures of U.S. states contribute to economic growth. The rankings are novel in two key respects: they are well grounded in established growth theory, in which the effect of taxes depends both on the level of taxes and on the composition of expenditures; and they are derived from actual estimates of the link between fiscal structures and economic growth. Estimates for the latter yield a growth hill, in which the incremental effect of taxes spent on productive services and infrastructure initially rises, reaches a peak, and then declines. Rankings derived from these estimates differ sharply from typical rankings based on levels of taxation alone. Two hypothetical policy experiments highlight both the growth-hill effects of tax investments in productive services and infrastructure and the short- and long-term tradeoffs in attempting to fund strong social services

Ranking state fiscal structures using theory and evidence

This paper offers unique rankings of the extent to which fiscal structures of U.S. states contribute to economic growth. The rankings are novel in two key respects: They are well grounded in established growth theory, in which the effect of taxes depends both on the level of taxes and on the composition of expenditures; and they are derived from actual estimates of the link between fiscal structures and economic growth. Estimates for the latter yield a growth hill, in which the incremental effect of taxes spent on productive services and infrastructure initially rises, reaches a peak, and then declines. Rankings derived from these estimates differ sharply from typical rankings based on levels of taxation alone. Two hypothetical policy experiments highlight both the growth-hill effects of tax investments in productive services and infrastructure and the short- and long-term tradeoffs in attempting to fund strong social services. © 2008 by the Association for Public Policy Analysis and Management.