| dc.description.abstract | Much academic literature exists surrounding the relationship between government size and economic output at the federal level, yet only a few studies investigate such a relationship at the sub-federal level. This work concentrates on the relationship between the public sector and economic performance using data from state and local governments within the US states over the 1976-2005 period. Thus, the purpose of this quantitative study is to investigate the effects of public expenditure on the economic output of the states. This investigation seeks a unique government spending optimal for each of the 50 US states by applying methodology developed for the federal level by Richard Vedder and Lowell Gallaway. Therefore, a secondary purpose of this study is to test the applicability of their model for the state and local level. The findings do not confirm the existence of state-specific spending optimums in a consistent manner, suggesting the model is not transferable to the sub-federal level. Using a modified time setting and aggregate state and local spending data, regression results provide confirmation of an Armey Curve and a spending optimal that is several percentage points higher than the Vedder and Gallaway conclusion. This finding strengthens the argument that the relationship between the public sector and economic growth depends on elements that change with time. Since theoretically there should exist an optimal level of spending for each state and expenditure category, further study is warranted. | |
