Conservative States Handle Their Finances Better

Blog Post - Conservative States Handle Their Finances Better

A few weeks ago I posted the latest Mercatus Center rankings of each state's fiscal conditions (i.e. budget, debt, solvency). Many commenters noted that conservative states generally ranked better than liberal states. So I decided to test the hypothesis.

I ran a regression comparing each state's fiscal condition (ranked 50 for best to 1 for worst) with its ideological leaning (ranked 50 for most conservative to 1 for most liberal). The results were pretty unambiguous.

States with more conservative residents have stronger fiscal conditions than states with more liberal residents. And the results were quite robust, with an R squared of 0.39 and very high significance level for the coefficient.

Possible explanations for the results:

As is often been the case, states run by fiscally conservative governments take better care of their financial health than the more liberal tax and spend states. There are many diverse reasons for this, not least of which are public union pension obligations, which grew when times were good but have become unsustainable as the economy slows. Liberal governments also tend to offer more generous, and expensive, entitlements, often to the point that they can't afford to pay them when they grow.

The bottom line is that governments that spend profligately, often to their own short-term political benefit, often wreak economic havoc upon their residents when economic conditions shift, while those who follow a more laissez-faire approach to the economy perform better over the longer term.

NOTE: I'm using a survey ranking the self-identified ideological tilt of each state's residents as a proxy for the level its liberal/conservative governance. This obviously isn't a direct measure, but ranking the left/right ideology of a government is subjective to begin with, so this proxy is likely as good as any other available.

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