States solve best—they have a more prominent role in establishing influential economic policy.

Policy debates often focus only on major decisions made in Washington, DC. But for many Americans, the decisions made much closer to home have just as large, if not larger, effects on day-to-day life. In important respects, the United States remains true to its original system of federalism: states and localities play a prominent role in setting policies that affect the economy more broadly. State and local government total expenditures amount to $2.9 trillion in the United States. While this is less than the federal government’s $4.3 trillion of expenditures, nearly two-thirds of federal total expenditures are transfers (either to individuals or state and local governments). This means that state and local governments have in some respects a more prominent role in decision-making than the federal government. Indeed, state and local governments make key investment decisions— about infrastructure, education, and many other areas—that help determine the long-run capacity of the entire economy. State and local governments also enact laws and regulations that define how economic activity takes place. These range from labor market rules to tax policy to environmental regulations to zoning rules. In addition, policymakers’ decisions about how to allocate resources—to education, transportation, or other public goods—are crucial to the U.S. economy. Although the federal government, either by law or by general practice, is required to do extensive analysis of the rules and regulations it makes, this is not always true at the state and local levels. The choices made across states—and sometimes local jurisdictions in the same state—often vary widely. For housing and transportation policy in particular, decisions made at the local level can have dramatic effects on how and where people choose to live and work. Mobility across states has declined sharply in the United States, and one reason appears to be that land-use restrictions in economically successful regions make it difficult for many workers to move to these locations. Similarly, transportation resources are not always efficiently allocated, making it more difficult for workers to access high-quality jobs. For the economy to grow and living standards to rise, it is crucial to have successful policy at all levels of government. A set of state and local policy proposals released in January 2019 is the latest in a series of efforts by The Hamilton Project to support broadly shared economic progress through the careful analysis of local, state, and federal policies. This document provides context for those policy proposals in the form of nine economic facts about how state and local policies matter for growth. These facts highlight how rigorous costbenefit analysis, optimal transportation policy, and land-use rules can affect access to opportunity.