Spending on Social Welfare Programs in Rich and Poor States. Final Report.. B. Overall Results of Econometric Analysis

07/01/2004

Using conventional ordinary least squares, we estimated the 50-state econometric model on pooled time series and cross-section data on state and local spending for the 24 years from 1977 to 2000. We conducted standard tests for auto-correlation of residuals, which sometimes constitutes an issue for time series analysis.19

The model and its estimates had two general purposes. First, the model estimates allowed us to assess the magnitude and statistical significance of variables of interest, such as state fiscal capacity as measured by per capita personal income, federal grants, and other determinants of state and local spending. Second, the model estimated state effects used in the comparisons among rich and poor states in general and among the six poor states selected for further analysis. We report an overview of the results in the text of this report. More detailed estimation results appear in Appendix A.

We estimated a number of models,20 but for purposes of this discussion we will focus on a single preferred model in which we allow for flypaper effects by including both state personal income and federal grants as separate variables, and we attempt to measure state and local needs through the poverty, unemployment, and population density variables. Both state and year dummies are included.

Below, we present the results, first for the regressions estimated over all states and then for the regressions estimated separately for each quartile defined by the historical average of real PCPI.

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