| The slow economic recovery since the 2008 financial crisis and Great Recession requires state and local governments to continue to make difficult decisions concerning which taxes to raise and which expenditures to decrease in order to maintain a balanced budget. As expenditures usually raise economic growth and taxes generally hinder it, seeking the optimum combination of tax structures and expenditure options is necessary to encourage prosperity in a state. In this paper I study the effects of various expenditures and revenue combinations on growth in state personal income from 1977--2010 for 49 states and the District of Columbia. I find that state and local governments overfund education and parks, recreation, and natural resources while they underfund hospitals and health spending, once netted for charges. Corporate Income Taxes are underutilized as a source of revenue. I also estimate growth hills and find evidence in support thereof. (JEL E62, H21, H70, O40, R11). |
