State Government Spending And Political Parties

from the St Louis Fed

In recent decades, American political divisions have widened, and the COVID-19 pandemic appears to have deepened these divisions. Has this polarization had an impact on how state governments budget their spending?

In a Regional Economist article titled “State Government Expenditures by Party Affiliation,” economist and Research Officer YiLi Chien and Research Associate Julie Bennett examined whether any correlation exists between state political leanings and specific types of state government expenditures. Although Republicans and Democrats traditionally disagree on issues such as education and law enforcement, there is still a question of whether these ideological divides result in very different policies, they noted.

Previous research suggests there is no relationship between the overall spending and partisan leaning, the authors observed. Instead, however, they investigated whether there may be links between partisan leaning and specific types of state spending.

A Look at the Data

Chien and Bennett used state and local government expenditures data from the Annual Survey of State and Local Government Finances conducted by the Census Bureau to measure state government expenditures and state legislator data from the National Conference of State Legislatures1 to measure state political leanings.

The survey’s major government expenditure categories include education services, social services and income maintenance, transportation, public safety, and environment and housing.

To compare spending across states, the authors looked at expenditures as a ratio of state gross domestic product (GDP). Additionally, state political leanings were measured as the average proportion of Democratic state legislators (the state Senate and state lower house combined) minus the corresponding share of Republican state legislators from 2009 to 2018. This creates a measurement of state political leanings ranging from -1 (100% Republican leaning) to 1 (100% Democratic leaning).

The Analysis

The center column of the table below shows the correlation coefficients between state political leanings (2009-18) and each type of spending (as a ratio of state GDP).

Chien and Bennett explained the correlation coefficient ranges from -1 to 1, with -1 indicating a perfect negative relationship in which the less that a state leans Democratic, the more it spends on a given category. A 1 indicates a perfect positive relationship in which the more that a state leans Democratic a state is, the more it spends on a given category. The value 0 indicates no relationship, and a coefficient of 0.7 or higher is usually considered a strong correlation.

Each expenditure category in the table displays little to no correlation with political leanings. The right-hand column also indicates a weak correlation, even though politics have become increasingly more divisive in recent years, they noted.

Within the center column, the transportation category has the highest correlation of -0.22, suggesting that more Republican-leaning states tend to spend more on transportation, but that correlation is still very weak, the authors wrote.

Furthermore, factors other than political leaning may drive the observed correlation. Chien and Bennet explained that highway expenditures differ for various reasons, including the number of drivers on the roads or the number of lane miles are in a state. For instance, Midwestern and Southern states (which are typically Republican) tend to have larger land areas than many of the Northeastern (which are typically Democratic) states, and therefore may not have more roadways to maintain.

In their analysis above, the authors looked at spending as a percentage of state GDP. To check the results, they also looked at the relationship between political leanings and spending when spending is measured as a share of total state expenditures.

The table below shows a slightly stronger relationship between political leanings and spending on transportation and education when the two types of expenditures are measured as a share of overall spending. However, the correlations still remain weak overall, they noted.

Conclusion

Although the political environment and rhetoric have become increasingly partisan in recent years, the authors’ analysis indicates that there is no obvious correlation between state political leanings and patterns of government spending.

“We need more nuanced empirical research to robustly ascertain the causal relationship (or lack thereof) between the two,” Chien and Bennett wrote.

Notes and References

1. The one exception to this is the state of Nebraska. Nebraska has a unicameral state legislature, consisting of just a state Senate, and its legislators have no official party affiliations. Therefore, the authors used the Ballotpedia evaluation of Nebraska state legislator party affiliation from 2014 to 2018 (all data available) to calculate the measure for Nebraska.

Additional Resources

• Regional Economist: State Government Expenditures by Party Affiliation
• On the Economy: Are State Political Leanings and Government Spending Correlated?
• On the Economy: How Does Government Spending Affect Inflation?

Source

https://www.stlouisfed.org/on-the-economy/2021/august/state-government-spending-and-political-parties

Disclaimer

Views expressed are not necessarily those of the Federal Reserve Bank of St. Louis or of the Federal Reserve System.