Publication Date


Document Type


First Advisor

Campbell, Carl

Degree Name

Ph.D. (Doctor of Philosophy)

Legacy Department

Department of Economics


The crowding out theory originally predicted substantially large effects from government activity in a market, including the impact of deficit spending on the price of loanable funds, namely, interest rates. Initial empirical testing in the twentieth century showed these effects to be quite small but consistent, while later testing suggested that the theory was wrong entirely and that a phenomenon of “crowding in” is observed during periods of large deficit spending by governments. This dissertation contributes to the existing literature by accounting for the supply side of the loanable funds market. Incorporation of a measure of global savings saves the crowding out theory and indicates that deficit spending by government does indeed have a positive and statistically significant effect on the following interest rates: 3-month Treasury bill, 3-year Treasury note, and 10-year Treasury note.

This dissertation also attempts to address the claim that residents of high-tax states are fleeing to low-tax states. Panel data on the 50 states of the Union are compared over the decade from 2010 to 2019, observing the rates of various taxes, cost of living, population growth rates, and labor market conditions, among other factors. The theory that people ultimately vote with their feet is supported by survey data, but the regression results offer only limited evidence that this is the case. Theoretically, higher tax rates, of any kind, cause state residents to move to states with lower taxes, ceteris paribus. Empirical estimations are attempted for the marginal effects of personal and corporate income, sales, property, and gasoline tax rates. Survey data from the last decade makes it clear that people have tended to move to states with lower income taxes, despite often facing relatively high sales taxes in the process. Two possible explanations for this curiosity are deliberated. As people become more mobile (lower transportation costs, work flexibility, etc.) and as the penalty of high state taxes increases (limited SALT deductions), the shift in domestic migration to low-tax states is expected to continue its acceleration.

The issuer of virtually any debt obligation can pay an NRSRO (Nationally Recognized Statistical Ratings Organization) to assign a debt or credit rating for that bond. While the actual calculations used to assess a credit rating on a sovereign, corporate, or municipal bond or other financial instrument are unknown, it is clear that certain widely available data play heavily into those credit ratings, but those data are already known to investors. While ratings agencies have a relatively poor track record with commercial paper, they are still looked to by investors, but not for simpler municipal bonds. Panel data of all 50 states over the last decade are used with a fixed effects estimator to demonstrate that a state’s credit rating does not greatly impact investors’ decision as to what yield they will demand on a municipal security issued by that state. Instead, their evaluation of default risk appears to be based largely on widely available data including the real debt per capita and real income per capita ratios of a state, the cost of servicing outstanding debt as a percentage of the state’s revenue, and the real interest rate on U.S. Treasuries.


138 pages




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