Does fiscal federalism matter for economic growth? Evidence from the United States

Abstract

Fiscal federalism can improve macroeconomic performance by increasing the efficiency and performance of the public sector. The aim of this study is to analyse the long-term relationship between fiscal federalism and economic growth during the period of 1961-2018 in the United States. In this analysis, first of all, the Hatemi-J Co-integration test was used to determine the long-term relationship between the variables, and accordingly it was determined that there is a long-term relationship between the variables at the 1% significance level. Then, the causality relationship between variables was tested using Hacker-Hatemi-J bootstrap causality analysis and no causality relationship was found among the variables. Finally, a time-varying causality test was applied, since the causality relationship between variables may lose its validity at some time points, especially in global economies. It was found that there is a causality relationship between variables when sub-periods are considered.