Median-voter, size of the government and budget spillover: evidence for US states

The article tests an extended version of Meltzer and Richard's model where the redistributive policy of the government is made through in kind transfer. The median-voter of one region decides the size of the government of her region taking into account the expenditures made by neighbours' location. The theoretical model predicts that the poorer the median-voter, the higher the size of government must be. Also, the effect of neighbour's region expenditures on own location's decision of government size is undetermined. Estimations for the American states for 1999-2000 year data suggest that there is no spatial interaction among states' expenditures. However, there is evidence in favour of the positive relation between the size of the government and inequality which supports Meltzer and Richard's theoretical model.