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Volatile States

Institutions, Policy, and the Performance of American State Economies

W. Mark Crain

Publication Year: 2003

Why do American state economies grow at such vastly different rates and manifest such wide differences in living standards? Volatile States identifies the sources of rising living standards by examining the recent economic and fiscal history of the American states. With new insights about the factors that contribute to state economic success, the book departs from traditional analyses of economic performance in its emphasis on the role of volatility. Volatile States identifies institutions and policies that are key determinants of economic success and illustrates the considerable promise of a mean-variance criterion for assessing state economic performance. The mean-variance perspective amends applications of growth models that rely on the mobility of productive factors keyed to income levels alone. Simply measuring the level of growth in state economies reveals an incomplete and perhaps distorted picture of performance. Taking the volatility of state economies explicitly into account refines the whole notion of "economic success." This book is essential reading for economists, political scientists, and policy-makers who routinely confront questions about the consequences of alternative institutional arrangements and economic policy choices. W. Mark Crain is Professor of Economics and Research Associate, James M. Buchanan Center for Political Economy, George Mason University.

Published by: University of Michigan Press

Contents

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pp. ix-

List of Illustrations

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pp. xi-xii

List of Tables

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pp. xiii-xiv

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Introduction: Economic and Fiscal Performance in a Mean-Variance Perspective

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pp. 1-4

American states ended the twentieth century on a winning streak. Most had participated in an uninterrupted eight-year economic expansion that lifted living standards to record levels and reduced unemployment rates to thirty-Ave-year lows. This string of favorable...

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1. Champions of the State Growth League

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pp. 5-24

The economic history of the United States in the twentieth century reflects enormous progress. Living standards more than quadrupled between 1929, the year of the infamous stock market crash and the beginning of the Great Depression, and 1999. Income per capita rose...

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2. The End of State Income Convergence

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pp. 25-30

The convergence thesis offers a broad and plausible explanation for the widely different rates of state economic development that chapter 1 describes. The most important feature behind the convergence thesis as it applies to the American states is the free Bow of productive...

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3. Volatile States: Estimates of the Risk-Return Trade-Off

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pp. 31-49

Assessments of macroeconomic performance normally rely on indicators such as income per capita, output per capita, and employment levels or the growth rates of these indicators. The sorts of measures described and analyzed in chapter 1 are typical of the standards used...

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4. Demise of the State Sales Tax

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pp. 50-63

At the dawn of the twenty-first century slightly more than one-third of all economic activity in the United States passed through the public sector. In round numbers, the federal, state, and local governments collected about $3.5 trillion in revenues out of a $10 trillion U.S. economy...

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5. Economic Consequences of State Tax Policy

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pp. 64-72

The effect of state Ascal policy in boosting or restraining economic performance remains an unsettled question, despite its obvious relevance to policymakers. The existing empirical research provides surprisingly little clarity. Chapter 1 described the persistent growth rate...

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6. Reliability of Revenues from Alternative Tax Instruments

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pp. 73-81

More than 200 years ago Adam Smith maintained that reliability is one of the most important attributes of a good tax system. Economists have since formalized this concept into a basic principle of public Anance, and most policymakers quickly discover its verity through practical...

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7. State Budgets Outgrow State Incomes

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pp. 82-95

The size of state governments increased between 1969 and 1998, a fact not likely to surprise even the most casual follower of public affairs. Less well known perhaps is the extent to which programs funded by state governments expanded during these three decades. Government spending in the typical...

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8. Fiscal Uncertainty:The Enemy of Efficient Budgeting

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pp. 96-118

This chapter analyzes, or in some cases updates and reanalyzes, the impact of fiscal institutions on state Ascal policy. The conclusions about certain fiscal institutions generally conform to those in prior studies. However, conducting the empirical analysis with a uniform...

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9. Political Ideology and Other Drivers of State Budget Priorities

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pp. 119-137

State government budgets consist of four major spending categories: education; public welfare, health, and hospitals; highways; and police protection and corrections.1 Combined, these four broad categories account for more than 70 percent of all state government spending...

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10. Fresh Perspectives on Familiar Problems

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pp. 138-141

The interjection of the volatility dimension breathes new life into well-plowed Aelds of political economy. Start with the extensive diversity in living standards among the American states, diversity that increased even further in the closing decades of the twentieth century...

Notes

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pp. 143-153

References

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pp. 155-161

Index

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pp. 163-166


E-ISBN-13: 9780472024070
E-ISBN-10: 0472024078
Print-ISBN-13: 9780472113033
Print-ISBN-10: 0472113038

Page Count: 184
Illustrations: 39 drawings, 32 tables
Publication Year: 2003

Research Areas

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Subject Headings

  • Finance, Public -- United States -- States.
  • Taxation -- United States -- States.
  • U.S. states -- Economic policy.
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