Fiscal Policy

Do Troubled Times Invite Cloudy Budget Reporting? The Determinants of General Fund Expenditure Share in U.S. States

“…This work suggests that elected officials sometimes deliberately move some spending items “off budget” (i.e., into special funds) either to funnel money to favored programs or constituencies, or to quietly reduce or eliminate certain spending categories. Kousser, McCubbins, and Rozga (, 292) use the example of tax and expenditure limitations (TELs) to illustrate this point, and explain, “lawmakers may have the ability to circumvent limits in ways that are buried deep in the details of thousand‐page documents.” Alt, Prillaman, and Lassen (, 341) offer a similar account, noting “the effect of [TELs] have long been the same: they are more likely to cause politicians to shift than to cut.” For example, if a state's general fund is subject to a TEL, lawmakers may evade limitations by raising revenues or expenditures via special funds. In this interpretation of transparency, reductions in a state's general fund share may be associated with declines in transparency.…”