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AbstractMany subnational economies are facing severe fiscal stress often generated by the devolution of responsibilities that have been accompanied by little devolution of fiscal resources. In 2011, the Illinois state government raised individual and corporate income taxes as one contribution to easing the problem of short term and longer‐term fiscal deficits; opponents of the tax increase were concerned about the impacts on labor mobility and the overall state economy, as well as the policy's effectiveness in addressing the state's financial situation. These concerns provide the foci of the present paper. Comparison of simulation results with and without the tax increase finds that although the policy increases the state government's income, it also negatively impacts the state economy in terms of greater out‐migration, lower employment and Gross Regional Product, and a smaller tax base in the long run. Moreover, simulation results show that the tax increase will expedite the state's debt clearance only if the state government significantly increases its share of income spent on debt payment, at the price of enhanced negative economic impacts. The results provide a cautionary tale for subnational authorities to consider more carefully the implications of unilateral changes in tax rates.

AbstractMunicipal mergers have become a worldwide phenomenon in the past few decades, primarily advanced to exploit economies of scale. While most evaluations of municipal mergers have focused on the efficiency of local public goods provision, it is rare in the literature to explore how such mergers promote economic growth in a developing country context. This research investigates the economic consequences of a policy experiment of city–county mergers (che xian she qu) in China during the period 2000–2004. Using comprehensive datasets at city, county and firm levels, we present evidence that the merger significantly increases local economic development, and the magnitude of the effect depends on local endowments related to agglomeration forces. The results are robust to a number of different model specifications. We further verify that improved transport infrastructure and urban agglomeration economies after merger are potential contributors to the positive merger effects.

ABSTRACT  The goal of this paper is twofold. The first goal is to incorporate spatial structure within shift‐share analysis, to take into account interregional interaction in the decomposition analysis. Secondly, this paper develops a taxonomy of regional growth rate decompositions. A taxonomy of the spatial structure is presented; it comprises twenty alternative decomposition structures, including the original standard shift‐share analysis as well as six alternative structures outlined in the taxonomy for non‐spatial structures.

We develop a Financial Computable General Equilibrium Model (FCGE) model that can analyse the economic impacts of the infrastructure investment projects and their financing options on growth and distribution in Indonesia economy. It is possible to estimate growth and distributional effects of each project based on the financing method (government financing with tax revenues, government bond, and private financing) over the construction and operation periods if the information on the investment expenditures, the construction location and the accessibility of the project are injected into the FCGE model. The government financing with tax revenues could generate higher effects on GDP than two other financing methods regardless of projects. However, the presented values of benefits over costs are less than one for two sample highway projects, so they cannot be sustainable with regard to economic assessment.

This paper contributes to the recent literature in spatial econometrics that focuses on space-time data modeling implementing a multi-location time-series statistical framework to analyze a regional system. Therefore, taking as a point of departure the Global Vector Autoregression approach introduced in Pesaran et al. (2004), a multiregional spatial vector autoregressive model (MultiREG-SpVAR) is formulated and then applied to study the spatio-temporal transmission of macroeconomic shocks across the regions in Spain. The empirical application analyzes the extent to which a region?s economic output growth is influenced by the growth of its neighbors (push-in or inward growth effect), and also investigates the relevance of spillovers derived from temporary region specific output growth shocks (push-out or outward growth effect). Our results identify some regions that perform as ?growth generating? within the Spanish regional system since growth shocks from these regions spill over to a large number of regions of the country, playing a key role in transmitting regional business cycles. The policy implications of our results suggest that national and/or regional governments should stimulate economic activity in these leading regions in order to favor the economic recovery process of the whole Spanish economy.