| This study uses the financial statements of New Mexico, Arizona, and Nevada to examine the fiscal and accounting effects of statehood. Brennan and Buchanan's 1980 public choice Leviathan hypothesis of government argued that in the making of fiscal policy, government behaves as a self-interested actor whose goal is to increase its share of the economy. The Leviathan hypothesis implies that a government whose level of sovereignty increases, as when a territory becomes a state, will use its new power to increase the fiscal "bite" it takes from the economy for its own use. Territorial residents often oppose statehood on those grounds, though statehood proponents and historians generally see such fears as exaggerated.; The quality and style of financial reporting by territories and early states varies widely by time and place, but no prior literature has systematically compared fiscal reports across the period of statehood. The reports of the two subject states, New Mexico and Arizona, were examined before and after statehood in 1912, and compared to the reports of the control, Nevada, which was a state throughout the period. Annual receipts, expenditures, and estimated true property values were calculated from the numbers found in the reports. "F" ratios of receipts and expenditures to property values and U.S. GNP were computed. For each report, observations were made of its treatment of a list of items including assets, liabilities, expenditures by type, receipts by source, tax rates, funds, interfund transfers, and so forth.; Both graphical and regression analyses of the "F" ratio time series show that statehood had a large, statistically significant, positive effect on the relative fiscal price of government. The passage of time and regional economic variables had little or no effect on the subject governments' fiscal behavior. Qualitative content analysis of the financial statements indicates that while their quality improved gradually with time and Progressive-era accounting reforms, statehood also noticeably improved the reporting. These results support the conclusion that there is a Leviathan dynamic of statehood that increases the "price" a government charges the economy and that simultaneously improves the accuracy and clarity of its fiscal reporting. |
