US state and local fiscal policies and non‐metropolitan area economic performance: A spatial equilibrium analysis

Abstract

Abstract. Faced with declining economic bases, many nonmetropolitan areas increasingly have become concerned about their future economic viability. A crucial dimension of this concern is the balancing of the need to be cost-competitive in terms of lower taxes against the need for provision of valued government services. Using a spatial equilibrium framework, this study econometrically examines the nexus between U.S. state and local fiscal policies and nonmetropolitan county growth in earnings and housing rents during the 1990s. The results suggest that state and local fiscal characteristics were important location determinants. Some characteristics could be clearly identified as having dominant firm profit effects while numerous others were identified as having household amenity effects. In addition, fiscal policies appeared to be more important for economic growth of nonmetropolitan counties which were remote from metropolitan areas than they were for counties adjacent to metropolitan areas.

Integrating Regional Economic Development Analysis and Land Use Economics

“…They also have been found to be important in explaining U.S. nonmetropolitan county wage and land rent differentials, in which some policies primarily affect quality of life, while others affect the business climate (Yu and Rickman, 2011).…”

The Texas economic model, miracle or mirage? A spatial hedonic analysis

“…If site characteristics are considered attractive by both households and firms, land rents are higher. Yet, whether wages will be higher or lower depends on whether the firm or household effect dominates (Yu and Rickman, 2013).…”

“…Therefore, I create dummy variables using scale [1,2), [2,3), [3,4), [4,5), [5,6), [6,7), [7,9] where the lower bound is included, while the upper bound is not included; the category [7,9] Texas after controlling for numerous potential exogenous sources of growth, which include policy differences between the states. This is in lieu of including policy measures, which may be endogenous, collinear, poorly measured, and difficult to interpret (Yu and Rickman, 2013); use of the dummy variables also fits nicely within the narrative of comparing recent state economic experiences in policy discussions. Tables 1 and 2 Table 1 reports the results across all areas that include both metropolitan and nonmetropolitan areas, while Table 2 reports the corresponding results across nonmetropolitan areas.…”

“…This paper follows the theoretical fiscal analysis framework of Yu and Rickman (2013), where spatial differentials in wages and land rents are assumed to reflect capitalized equilibrium values of state and local fiscal characteristics to firms and households. Fiscal policies of state and local governments have been found to be as important as natural amenities in explaining metropolitan area wage and rent differentials Tracy 1989, 1991).…”

“…In the framework, following the presentation of Yu and Rickman (2013), the economy has two rational representative agents: the household and the firm. The household is assumed to have complete mobility across regions and earns income from selling one unit of labor.…”