Budget institutions and political insulation: why states adopt the item veto

Abstract

Forty-three of the fifty states of the United States have granted item veto authority to their governors as part of state constitutions. In this paper, I test explanations of why and when a legislature would cede institutional power. Using data from 1865 to 1994, I show that these measures are most likely proposed by fiscal conservatives who fear the loss of power in the future; in order to protect their interests for those periods when they will be in the minority, they implement institutions such as the item veto which will limit future, liberal legislatures. The results therefore shed light on two important substantive areas. First, by showing how the choice of budgetary institutions is endogenous to the political process, it clarifies that they are not necessarily adopted for economic efficiency. Second, it provides evidence in support of theories that have posited that electorally weak groups will heavily 'insulate' policies in periods in which they momentarily hold power (e.g. Moe 1989, de Figueiredo 2002.

Direct Democracy and the Executive Branch

“…This difference is significant at better than the 10 percent level. In this case, it is unlikely that the initiative caused the difference: most states adopted some form of line item veto many years before they adopted the initiative (de Figueiredo, 2003). Moreover, I could not find instances of actual initiatives that were used to expand or curtail the governor's veto power.…”

Political Economy of Fiscal Institutions

“…Relevant examples are France in the 1950s (Wildavsky, 1986) and Sweden in the 1990s (Molander, 2000). Studying the imposition of line-item vetos in US state governments, De Figueiredo (2003) finds that fiscal conservatives strengthen the role of the executive in the budget process when they anticipate losing control over the legislature to fiscal liberals. Gleich and von Hagen (2002) find that states in Central and East Europe characterized by greater social cleavages have adopted more centralized budget processes.…”

The Formal Independence of Regulators: A Comparison of 17 Countries and 7 Sectors

“…This is one of the main results of de Figueiredo's (2002) formal model: the choice to insulate policy from politics depends both on the risk of being replaced and the probability of future re-election. In other words, the most likely "insulators" are electorally weak groups, when they happen to be in power, an hypothesis that has found empirical support (De Figueiredo 2003). This argument has been examined in the context of IRAs by Gilardi (2005a).…”