Department of Economics

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Browsing Department of Economics by Author "Bania, Neil"

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    Ranking State Fiscal Structures using Theory and Evidence
    (University of Oregon, Dept of Economics, 2007-06) Bania, Neil; Stone, Joe A.
    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.
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    Taxes, Government Expenditures, and State Economic Growth: The Role of Nonlinearities
    (University of Oregon, Dept of Economics, 2006-06) Bania, Neil; Gray, Jo Anna
    Barro’s (1990) model of endogenous growth implies that economic growth will initially rise with an increase in taxes directed toward “productive” expenditures (e.g., education, highways, and streets), but will subsequently decline. Previous tests of the model, including Barro (1989, 1990) and recently Bleaney et al (2001), focus on whether the linear incremental effect of taxes is positive, negative, or zero, with substantial evidence for all three conclusions. In this study, we test for nonlinearity directly by incorporating nonlinear effects for taxes, and based on U.S. states find that the incremental effect of taxes directed toward productive government expenditures is initially positive, but eventually declines. U.S. states on average appear to under invest in expenditures on productive government activities.