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A transportation network is vital to an economy. However, the U.S. highway infrastructure suffers from insufficient maintenance creating inefficiencies such as increased travel times and increase in accidents. The means to fund the infrastructure and their maintenance is a point of debate. In this paper, we examine the role of political institutions and decision‐making on the quality of highway infrastructure by focusing on the role of fiscal decentralization. Using generalized linear model estimation on state data from 1992 to 2012, we find evidence that fiscal decentralization improves infrastructure quality. These results are robust to the choice of control variables and method of estimation. (JEL D73, H42, H72)

AbstractTwo shifts of informal rules occurred in the decades around the turn of the 20th century that continue to shape U.S. fiscal policy outcomes. Spending norms in the electorate shifted to expand the scope of the government budget to promote economic security and macroeconomic stability. Simultaneously, norms for elected office shifted to careerism. Both norms were later codified into formal rules as legislation creating entitlement programs, macroeconomic responsibility, and organizational changes to the fiscal policy process. This institutional evolution increased demand for federal expenditures while creating budgetary commons, thus imparting strong motivations to spend through deficit finance in normal times. Despite the last four decades of legislative attempts to constrain spending relative to taxes, the informal norms have trumped the formal constraints. While the empirical literature on deficits has examined the constraining effects of informal rules, this paper offers a novel treatment of shifting norms as having expansionary effects on deficits.

PurposeThe purpose of this paper is to show that state economic policies, in addition to state economic performance, impact state bond ratings.Design/methodology/approachUsing a sample of 39 states over the period 1998‐2008, regression analysis is employed to determine whether various measures of economic freedom contribute to state bond ratings.FindingsAfter controlling for common factors such as state per‐capita income, unemployment, the ratio of tax revenue to income, state debt as a percentage of government revenue, and public corruption, results suggest that greater economic freedom is associated with higher bond ratings. For example, a one standard deviation increase in Area 2 of the Economic Freedom of North America index (Takings and Taxation) would be associated with a 0.36 increase in Moody's bond rating for that state, which translates to approximately a $247 lower cost per million dollars of debt.Originality/valueThis study contributes to the empirical state bond rating literature by highlighting that states with greater economic freedom have higher bond ratings and, therefore, pay lower borrowing costs than their counterparts with lower economic freedom index scores.

Divided government is known to correlate with limited government, but less is understood about the empirical conditions that lead to divided government. This paper estimates the determinants of continuous and categorical measures of divided government in an empirical macro political economy model using 30 years of data from the American states. Voters support more divided government after increased government spending per dollar of tax revenues, but more unified government after worsening incomes and unemployment rates. Only conditional support is found for the strategic-moderating theory (Alesina and Rosenthal in Econometrica 64(6):1311-1341, 1996) that focuses purely on midterm cycles and split-ticket voting absent economic conditions. Adapted from the source document.

AbstractThere is a large literature examining the macroeconomic effects of state economic development incentives on employment, income, tax revenue, and growth. At best, these incentives are found to be weakly effective at job creation, but inefficient due to the distortions, secondary effects, and increased rent‐seeking they encourage, with little public accountability. Given the evidence on their inefficiency, what explains their continued popularity? We find that large development incentives create substantial benefits for incumbent politicians in the form of both higher campaign contributions (particularly from business, labor, and construction sectors) and higher margins of victory at election time. Thus, political rent extraction may be the best explanation for the continued existence and popularity of these relatively ineffective incentive programs in states.

The literature on voter turnout focuses on the determinants of the electorate's vote supply. There is growing recognition, however, that the demanders of votes—candidates, political parties, and interest groups—have strong incentives to invest resources in mobilizing support on Election Day. The authors test the hypothesis that corruption rents increase the value of holding public office and, hence, elicit greater demand-side effort in building winning coalitions. Analyzing a pooled time-series data set of public officials convicted of misusing their offices between 1979 and 2005, we find, after controlling for other influential factors, that governmental corruption raises voter turnout rates in gubernatorial elections.

The adoption of lotteries by state governments has received significant attention in the economics literature, but the issue of casino adoption has been neglected by researchers. Casino gambling is a relatively new industry in the United States, outside Nevada and New Jersey. As of 2007, 11 states had established commercial casinos; several more states are considering legalization. We analyze the factors that determine a state's decision to legalize commercial casinos, using data from 1985 to 2000, a period which covers the majority of states that have adopted commercial casinos. We use a tobit model to examine states' fiscal conditions, political alignments, intrastate and interstate competitive environments, and demographic characteristics, which yields information on the probability and timing of adoptions. The results suggest a public choice explanation that casino legalization is due to state fiscal stress, to efforts to keep gambling revenues (and the concomitant gambling taxes) within the state, and to attract tourism or 'export taxes.'. Adapted from the source document.