An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Stephanie D. Moussalli
University Of West Florida

Abstract: Brennan and Buchanan’s public choice Leviathan hypothesis of government argued that in the making of fiscal policy, government behaves as though its goal is to increase its share of the economy. If so, 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. The financial reports of 2 subject states, New Mexico and Arizona, were examined before and after statehood in 1912 and compared to the reports of the control, Nevada. “F” ratios of receipts and expenditures to property values and U.S. GNP were computed. Both graphical and regression analyses show that statehood had a large, statistically significant, positive effect on the relative fiscal price of government. The control, Nevada, did not change its fiscal behavior around 1912. These results support the conclusion that there is a Leviathan dynamic of statehood.

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