Interstate Spillovers, Fiscal Decentralization, and Public Spending on Medicaid Home- and Community-Based Services

This article examines the interstate spillover effect of Medicaid expenditures for home-and community-based services (HCBS) and tests the relationship between fiscal decentralization and public spending. Based on the theory of interstate strategic interaction, an empirical model is specified that explicitly accounts for interdependence in states' spending decisions. The model is estimated by applying spatial econometric methods to panel data for the 50 U.S. states for 2000-2010. Findings show a positive interdependence in state HCBS expenditures that is contingent on similarity in citizen ideology between states. Fiscal decentralization, measured by transfer dependence and revenue autonomy, is positively related to Medicaid HCBS spending.