Governing State Economies

Can state governments make policies that support sustainable economic growth without undermining it in the long term? This question reverberates throughout American states as the repercussions of the Great Recession take hold. Drawing upon the theory of contestable markets, this book develops a framework for analyzing how democratic politics and jurisdictional rivalries shape how states govern their economies. The institutional design and control of governments and configuration of jurisdictional competition for economic resources can limit problematic policy regimes. Using historical, statistical analysis of American states, this book demonstrates that contestable political control shapes policy regimes to support sustainable economic growth, but the broader economic rivalry with other states can mitigate or enhance the constraining influence of political contestability. Tax policy, budget management, and bond ratings are examined in particular, but the theoretical framework is applicable to many policies and democratic polities that struggle with the tension between democracy and markets that characterize our world today.