Pavel Yakovlev

ARMS TRADE, MILITARY SPENDING, AND ECONOMIC GROWTH

There is a large literature on the relationship between economic growth and defense spending, but its findings are often contradictory and inconclusive. These results may be partly due to non‐linear growth effects of military expenditure and incorrect model specifications. The literature also appears lacking an empirical analysis of interaction between military spending and the arms trade and the impact of these two on growth. This paper investigates this non‐linear interaction in the context of the Solow and Barro growth models recommended by Dunne et al. 1 (2005). Using fixed effects, random effects, and Arellano–Bond GMM estimators, I examine the growth effects of military expenditure, arms trade, and their interaction in a balanced panel of 28 countries during 1965–2000. The augmented Solow growth model specified in Dunne et al. (2005) yields more robust estimates than the reformulated Barro model. I find that higher military spending and net arms exports separately lead to lower economic growth, but higher military spending is less detrimental to growth when a country is a net arms exporter. 1 I would like to thank Paul Dunne, Ron Smith, and Dirk Willenbockel (2004) for sharing their data.

Does State Spending on Mental Health Lower Suicide Rates

Using recently released data on public mental health expenditures by U.S. states from 1997 to 2005, this study is the first to examine the effect of state mental health spending on suicide rates. We find the effect of per capita public mental health expenditures on the suicide rate to be qualitatively small and lacking statistical significance. This finding holds across different estimation techniques, gender, and age groups. The estimates suggest that policies aimed at income growth, divorce prevention or support, and assistance to low income individuals could be more effective at suicide prevention than state mental health expenditures.

How does the estate tax affect the number of firms

Purpose - – The purpose of this paper is to estimate the effect of the combined (Federal and state) estate, inheritance, and gift (EIG) tax burden per decedent on the number of firms in the USA. Design/methodology/approach - – Estimates are based on a longitudinal panel of 50 American states from 1988 to 2006. Findings - – The paper finds that the growth in the EIG tax burden per decedent significantly reduces the growth in the number of firms, especially small firms. The higher dissolution rate among small firms can be attributed to the asymmetric liquidity effect, which limits the ability of small business owners to raise the funds needed to pay the estate tax without liquidating their estates. Practical implications - – The estimates suggest that the reductions in EIG taxes, brought about by the passage of 2001 EGTRRA, have lead to a higher growth in the number of firms, ceteris paribus. Social implications - – As of this writing, the future of the Federal estate tax looks uncertain. Policymakers should note that the estate tax lowers competition and economic growth, which hurts both the poor and the rich. Originality/value - – This study is the first to examine the impact of the combined (Federal and state) EIG tax burden on the number of firms using state-level panel data.

The Fiscal Consequences of State Legislative Term Limits

This study estimates the effect of state legislative term limits on state tax revenue, general expenditure and its main components: welfare, highways, health, education, and state aid to local governments. Two alternative measures of term limits are used: an original term limit index developed in this paper and the potentially endogenous average legislative turnover rate. Controlling for economic, institutional, political, and demographic factors as well as the endogeneity of legislative turnover, we find that the two distinct measures of term limits have qualitatively similar effects on state government finances. Our estimates indicate that stricter legislative term limits not only increase legislative turnover and the size of government, but also change the composition of government spending.

How to Improve Pennsylvania's Tax System

Pennsylvania ranks near the top in tax burden and near the bottom in business friendliness in the nation. While much good can be said about the state’s at personal income tax rate and relatively low sales tax rate, Pennsylvania’s business taxes are in serious need of reform. The state government took a step in the right direction by phasing out its archaic capital stock and foreign franchise tax, but Pennsylvania’s economy is still being held back by its high corporate income and unemployment insurance taxes. Pennsylvania’s 9.99 percent corporate income tax rate, the second highest in the nation, puts the state at a significant competitive disadvantage while generating less than 7 percent of total tax revenue. A combination of business tax cuts and tax base broadening could make Pennsylvania’s economy grow faster without jeopardizing its public finances.

State Government Finances and Legislative Term Limits Revisited

This study estimates the effect of U.S. legislative term limits on state revenue, general expenditure and its main components (welfare, highways, health, education, and state aid to local governments). Two alternative measures of term limits are tested: 1) an original term limit index and 2) average legislative turnover rate. Controlling for economic, institutional, political, and demographic factors, we find that neither of term limits measure has a significant effect on the per capita size of state government. However, the two measures of term limits appear to have a significant effect on the distribution of public funds within the state budget.