State Government Finance Trend and Determinants Analysis

Abstract

This study analyzes state revenues, expenditures, and their determinants from 2008 to 2019. The analysis revealed a significant increase in spending on social services and less reliance on tax revenue during this time. Corporate income tax revenue is the most vulnerable to a business cycle, followed by individual income tax revenue. Sales/gross receipt tax is least affected by business cycles. State expenditure shows a steady growth pattern and is not responsive to economic conditions and revenue. There is evidence of conflict between state legislative and executive branches as governors’ and legislators’ salaries increase. State legislators focus on income tax while governors focus on sales and gross receipt tax to increase state revenue. Gender does not play a role in state finance. State legislators’ salary and per diem compensation significantly affects state revenue and expenditure, often in an opposite direction.