This paper theorizes that the impact of ideology on the size of US state governments increases with state income. This idea is tested using state-level ideology data derived from the voting behavior of state congressional representatives. Empirically the interaction of ideology and mean income is a key determinant of state government size. At 1960s levels of income the impact of ideology is negligible. At 1997 levels of income a one standard-deviation move towards the left of the ideology spectrum increases state government size by about half a standard deviation. Estimated income elasticities differentiated by state and time are found to be increasing with ideology and diminishing with income, as predicted by the theory.
Figure 4: Effect of UI on labor market tightness in different matching models
Pickering, A.C., Rockey, J. Ideology and the size of US state government. Public Choice 156, 443–465 (2013). https://doi.org/10.1007/s11127-012-0026-x