Banking Structure, Fiscal Variables, and County-Level Economic Growth: The Case of Kansas

Abstract

This paper reexamines a 1999 study by Abrams, Clarke, and Settle (ACS) which finds that, for the 1950-80 period, state-level economic growth is positively and significantly related to financial depth but is not influenced by banking restrictions and fiscal policy variables. The study focuses on several empirical issues particularly endogeneity and multicollinearity problems. Correcting for these biases and applying a more parsimonious variant of ACS' model at the Kansas county level for 1980-97, I find that county income growth is associated not only with financial depth but also with changes in bank branching policy and tax burden. (01, 02)