The Effects of Taxes, Expenditures, and Public Infrastructure on Metropolitan Area Employment*

Abstract

Data for 28 metropolitan areas over a 15-year period are used to determine the impacts of government spending, taxes, and public infrastructure on total employment and disaggregated employment. After carefully controlling for the government budget constraint we find that taxes are negatively related to total employment and education spending is positively related to total employment. Nevertheless, we find that it is difficult for metropolitan areas to influence the composition of their employment with government tax and expenditure policies. Moreover, at current levels of public infrastructure, marginal changes in infrastructure have no strong effect on employment.

Determinants of Income Growth in Metropolitan and Nonmetropolitan Labor Markets

“…5 While we find that public capital investment had a significant negative impact on growth for the full sample of LMAs, we find that the coefficient on public capital investment is negative but insignificant after disaggregating across metropolitan and nonmetropolitan areas. For metropolitan areas, these results are similar to Crihfield and Panggabean (1995), Dalenberg andPartridge (1995), andGlaeser, Scheinkman, andShleifer (1995) and for nonmetropolitan areas the results are consistent with evidence reported by Chandra and Thompson (2000) for highways. Overall, A consistent result across metropolitan and nonmetropolitan areas is the positive and significant coefficient on human capital investment, which highlights again the importance of education in growth.…”

Effects of local fiscal policy on firm profitability

“…Although this is a frequently used measure, it has been suggested that expenditures do not capture the quality of the goods and services provided. Dalenberg and Partridge (1995), for example, after finding a negative coefficient on highway spending with respect to metropolitan area employment, argued that increased expenditures may reflect deteriorating roads. Furthermore, Charney (1983) andFisher (1997) postulated that the cost of providing a certain good or service depends inter alia on the geographical or population characteristics of the region and can thus differ significantly between municipalities, without reflecting quality or quantity differences.…”

State taxes and economic growth revisited: have distortions changed?

“…This approach not only allows us to avoid omitted variable bias, but also allows for an interpretation of the estimated coefficient on own-source revenues as a change in own-source revenues corresponding to a change in expenditures. The necessity for this approach has been shown by Helms (1985), Dalenberg and Partridge (1995), and others. We note that, although our discussion has focused on the tax costs of state own-source revenue and the implied negative effect this would exert on economic growth, the overall effect of own-source revenues is ambiguous since, given the structure of our model, own-source revenues correspond to government expenditures.…”