ONE of the most important developments in public finance in the post-World War II period has been the great growth of state and local government debt. From a level of $15,900,000,000 in fiscal 1946, state and local government gross debt outstanding has more than quadrupled, to $69,800,000,000 in fiscal 1960.' This study is concerned with the factors affecting the volume and timing of state and local government new debt issues.2 An attempt is made here to develop comprehensive econometric models explaining post-war state government and local government new debt patterns. While in most studies of municipal debt no distinction is made between state governments and local governments, respectively, in the present study it was found that such a distinction is crucial to an adequate comprehension of the factors affecting the new debt issues. Therefore, the next two sections are devoted to separate analyses of state debt and local debt.

PROFESSORS Friedman and Meiselman' recently have reported that a simple theory model describes aggregate consumption more accurately than a simple autonomous expenditure model. They believe this result is evidence that the quantity theory is a better description of the American economy than the autonomous expenditure or Keynesian theory.2 If their interpretation were correct, the Friedman-Meiselman paper would be one of the most significant economic studies in many years. But it is not correct. Friedman and Meiselman have represented the autonomous expenditure theory in a very unorthodox form. Their statistical comparisons are extremely sensitive to how the autonomous expenditure theory is represented. Below, I employ a more conventional representation of the autonomous expenditure theory and demonstrate why Friedman and Meiselman's tests are misleading. Further, using this conventional model and some of their data, little empirical evidence is found which favors the theory. Finally some other conceptual weaknesses of the Friedman-Meiselman tests are illustrated. Briefly, Friedman and Meiselman compare simple, partial, and multiple correlation coefficients obtained from the following equations, estimated from annual (1897-1958) and quarterly (1945-1958) data for the United States: C=al+8(A (1) C=a2 +82M (2) C = a3+/33A +13P (3) C = a4 +84M+y4P (4) C = a5 + 35A + 85M (5) C = a6 + 86A + 86M + Y6P (6)

Lester D. Taylor, Thomas A. Wilson, Three-Pass Least Squares: A Method for Estimating Models with a Lagged Dependent Variable, The Review of Economics and Statistics, Vol. 46, No. 4 (Nov., 1964), pp. 329-346

Evsey D. Domar, Scott M. Eddie, Bruce H. Herrick, Paul M. Hohenberg, Michael D. Intriligator, Ichizo Miyamoto, Economic Growth and Productivity in the United States, Canada, United Kingdom, Germany and Japan in the Post-War Period, The Review of Economics and Statistics, Vol. 46, No. 1 (Feb., 1964), pp. 33-40