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The size and scope of government in the US states: does party ideology matter?

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Abstract

We investigate empirically how party ideology influences size and scope of government as measured by the size of government, tax structure and labor market regulation. Our dataset comprises 49 US states over the 1993–2009 period. We employ the new data on the ideological mapping of US legislatures by Shor and McCarty (Am. Polit. Sci. Rev. 105(3):530–551, 2011) that considers spatial and temporal differences in Democratic and Republican Party ideology. We distinguish between three types of divided government: overall divided government, proposal division and approval division. The main result suggests that Republican governors have been more active in deregulating labor markets. We find that ideology-induced policies were counteracted under overall divided government and proposal division.

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Notes

  1. Another reason for manipulating economic policies is electoral motives. We focus on the influence of party ideology and do not investigate electoral cycles.

  2. Scholars have examined how government ideology influenced economic policy-making across counties in other federal states, for example documenting partisan influence in Canada (e.g., Ferris and Voia 2011; Bjørnskov and Potrafke 2012).

  3. Data on Economic Freedom in the US states have been first introduced by Karabegovic et al. (2003). The data have been used by, for example, Ashby and Sobel (2008), Compton et al. (2011) and Garrett and Rhine (2011).

  4. For further details on the construction of the economic freedom indicators, as well as the primary data, see Karabegovic et al. (2003).

  5. We distinguish between 299 rightwing and 284 leftwing governors. We do not split the sample in two parts of exactly the same size to avoid having one governor being coded once as leftwing and once as rightwing.

  6. Panel data unit root tests by Levin et al. (2002) and Im et al. (2003) show that the first differences of the size and scope of government variables are stationary.

  7. The correlations between Presidential vote shares and results in state elections are non-negligible. Including vote shares for Republican presidential candidates may therefore have the effect of reducing the point estimates of state ideology variables. Our main estimates in the following are thus conservative.

  8. One might also argue for including controls for supermajority and balanced budget requirements. Yet, only two states—California and New Hampshire—have made de facto changes to these institutions in the period which we consider. We therefore note that these institutional features will be subsumed by the state fixed effects.

  9. The results excluding the other explanatory variable may thus suffer from omitted variable bias.

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Acknowledgements

We are grateful for comments from Felix Bierbrauer, Francois Facchini, Alexander Fink, Martin Hellwig, David Dreyer Lassen, Leandro de Magalhaes, Mikaël Melki, Fabio Padovano, Martin Rode, Mark Schelker, Jim Snyder, Christian Traxler, Heinrich Ursprung and participants of the 2010 meetings of the Public Choice Society, the 2010 meetings of the European Public Choice Society, the 2010 Silvaplana Workshop on Political Economy, the 2011 meetings of the Public Choice Society, the 2011 meetings of the European Association of Law and Economics, the 2012 meetings of the International Institute of Public Finance and seminars at University of Lucca, the Max Planck Institute for Research on Collective Goods in Bonn, the University Paris 1, Lund University, the University of Freiburg, the ifo Institute, the University of Siegen, the University of Leicester, and the University of Augsburg. We also thank state budget offices for help, in particular Paul Potamianos (Connecticut), Sheila Peterson (North Dakota), Kristin Keith (Oregon) and Samantha Smithingell (Washington). Henrik Pedersen, Margret Schneider and Christian Simon provided excellent research assistance.

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Authors and Affiliations

  1. Department of Economics and Business, Aarhus University, Fuglesangs Alle 4, 8210, Aarhus V, Denmark

    Christian Bjørnskov

  2. Center for Economic Studies, University of Munich, Schackstr. 4/I, 80539, Munich, Germany

    Niklas Potrafke

  3. ifo Institute, Poschingersr. 5, 81679, Munich, Germany

    Niklas Potrafke

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  1. Christian Bjørnskov
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Correspondence to Niklas Potrafke.

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Bjørnskov, C., Potrafke, N. The size and scope of government in the US states: does party ideology matter?. Int Tax Public Finance 20, 687–714 (2013). https://doi.org/10.1007/s10797-013-9284-x

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