Ecn 250 Paper Assignment 2

Mr. Mutti Ecn 250

Carnegie 204 Fall 1998

Public Finance

Paper Assignment #2

State-Local Government Economic Profile

The purpose of this assignment is to create an economic profile of your state's tax and expenditure policies. To demonstrate how your state has made different decisions regarding its expenditure priorities or chosen to rely upon different tax instruments, you will usually find it most meaningful to compare your state's performance relative to the performance of neighboring states or to corresponding averages for the nation as a whole.

Two sources of information provide all the background I expect you to have for this assignment. One is the Statistical Abstract of the United States. You can access this document from the internet at http://www.census.gov/prod/www/abs/cc97stab.html, or check it out from the circulation desk at Burling Library. To help you identify useful information from it, I have xeroxed some of the key tables on state tax revenue, expenditures, population, etc., and put them on reserve under Ecn 250, but I don't want to discourage you from considering other items, too.
Because the Statistical Abstract tables include only state government data for most variables, I also have put on reserve a book called 1998 State Rankings (HA 203 U17, 9th edition). This source is useful because it has several tables that combine state and local governments expenditures and revenues. That additional information often isn't necessary, if, for example, all expenditures for police are made by local governments and all expenditures for natural resource conversation are made by state governments. For some important expenditures such as education, there is considerable variation in the local versus state responsibility for financing this item. Therefore, we want to look at total spending by both groups to judge how many resources are devoted to education.

Material from these two sources will allow you to compare not only tax and expenditure measures, but also differences across states in their population, income, retail sales base, poverty levels, school age population, miles of roads to maintain, etc. In working with this material, you should consider what types of comparisons are most meaningful: absolute dollar expenditures, expenditures per capita, expenditures per dollar of income, or the share of the budget represented by that expenditure. To what extent do these alternative measures lead to the same conclusions and to what extent do they lead to different conclusions? Is a comparison at a single point in time most appropriate, or are you more interested in how measures have changed over time?

Possible items to consider in your analysis:

I. An overview of total expenditures and total taxes in your state: Is the government's role in your state economy particularly large?

II. Expenditure Policy

A. How does your state's distribution of expenditures across categories compare to national average patterns of expenditure?

B. Can you explain any differences found in "a." above as the consequence of different school age populations or poverty-stricken residents, for example, or do voter preferences just differ by state?

C. In which categories of general expenditure does it appear that above/below average state income is associated with above/below average government spending? Are some expenditure items essentials that cannot be eliminated at low levels of income, while others are luxuries that rise more rapidly when income rises?

D. Are welfare expenditures a rapidly growing section of the budget? Does the complaint over uncontrolled, runaway entitlements from the government seem relevant in your state?

III. Revenues and Government Finance

A. Is this state an above-average recipient of inter-governmental transfers from the federal government? Does federal assistance seem to be directed at helping poorer states?

B. How does the state's reliance on different tax instruments (income, sales, or property) compare to national average patterns? What factors might explain the state's ability (or need) to deviate from average practice?

C. If you apply standard assumptions we made regarding the incidence of state-local income, sales and property taxes, how would you characterize the burden of this state's taxes? Does this appear to be a progressive tax structure?

D. Given the available tax base within the state (retail sales, personal income, assessed value of property), does this state seem to be making the same "effort" to collect revenue as other states do on average? If your state receives large federal transfers, does that seem related to tax effort at all? (i.e., Do states that derive an above-average amount of tax revenue per dollar in the potential tax base get rewarded or penalized by the federal government for this effort?)

These ideas are intended as suggestions for how to proceed in doing a project whose goal is to get our hands dirty with real data and to give us a better appreciation of what state-local governments do. This paper is due at class time, December 7th. Grades on late papers decline by one-third of a letter grade for each day beyond this deadline.

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Ecn 250
Syllabus

I.	An overview of total expenditures and total taxes in your state: Is the government's role in your state economy particularly large?
II.	Expenditure Policy
	A.	How does your state's distribution of expenditures across categories compare to national average patterns of expenditure?
	B.	Can you explain any differences found in "a." above as the consequence of different school age populations or poverty-stricken residents, for example, or do voter preferences just differ by state?
	C.	In which categories of general expenditure does it appear that above/below average state income is associated with above/below average government spending? Are some expenditure items essentials that cannot be eliminated at low levels of income, while others are luxuries that rise more rapidly when income rises?
	D.	Are welfare expenditures a rapidly growing section of the budget? Does the complaint over uncontrolled, runaway entitlements from the government seem relevant in your state?
III.	Revenues and Government Finance
	A.	Is this state an above-average recipient of inter-governmental transfers from the federal government? Does federal assistance seem to be directed at helping poorer states?
	B.	How does the state's reliance on different tax instruments (income, sales, or property) compare to national average patterns? What factors might explain the state's ability (or need) to deviate from average practice?
	C.	If you apply standard assumptions we made regarding the incidence of state-local income, sales and property taxes, how would you characterize the burden of this state's taxes? Does this appear to be a progressive tax structure?
	D.	Given the available tax base within the state (retail sales, personal income, assessed value of property), does this state seem to be making the same "effort" to collect revenue as other states do on average? If your state receives large federal transfers, does that seem related to tax effort at all? (i.e., Do states that derive an above-average amount of tax revenue per dollar in the potential tax base get rewarded or penalized by the federal government for this effort?)