Why do Tax and Expenditure Limitations Pass in State Elections?

Abstract

This article uses information on the actual conditions in all states over the extended period 1978 to 1990 to estimate the probability of tax and expenditure limitation (TEL) passage in state elections. This probability is a function of economic, fiscal, demographic, and political factors in the state, as well as specific features of the TEL; these variables are chosen to measure demand-side and supply-side features of the political process in the state. The estimation procedures use maximum likelihood techniques; a special feature of the estimation is correction for the sample selection bias that may occur with standard probit estimation because a threshold set of conditions must exist before any limitation is even placed on a statewide ballot and a voting outcome is actually observed. The results show that increases in both property taxation and local revenues relative to state revenues increase the probability of TEL passage; however, increases in total state tax revenues are associated with a lower likelihood of TEL passage. Furthermore, changes in income and in the tax price of state and local public services are important determinants of TEL passage over time. Specific features of a limitation do not generally affect passage probabilities, although a state that has already imposed a limitation is less likely to do so again. Political and demographic features of the state also have little impact on TEL outcomes.

Political Economy of Fiscal Institutions

“…Prominent examples are the balanced-budget constraints, numerical debt ceilings, and limits on (the growth of) taxes and spending that exist in almost all states of the U.S. and most provinces in Canada, and the numerical debt and deficit limits of the European Monetary Union. Historically, such rules were often imposed by taxpayers, who were angry about the spending profligacy of their elected representatives (Eichengreen andvon Hagen 1996, Millar 1997) or rising taxes (Alm and Skidmore 1999. ) Ex-ante rules are also frequently imposed on sub-national governments to protect the central government against the risk of having to bailout highly indebted sub-national governments with limited revenue sources of their own (von .…”

Institutional Constraints, Rule‐Following, and Circumvention: Tax and Expenditure Limits and the Choice of Fiscal Tools During a Budget Crisis

“…Within the set of allowed moves, city officials will choose the course of action that will maximize votes. Empirical studies provide evidence that popular support for, and actual passage of TELs, are driven more by voters’ desire for lower taxes rather than for a reduction in government services (Alm and Skidmore ; Ladd and Wilson ). This is not surprising in light of the observation that “Consumers view these services traditionally provided by state and local governments as basic commodities, similar in character to basic foodstuffs and maintenance services” (Fisher , 83).…”

“…Insights from political economy suggest that how TELs influence the choice of fiscal tools is shaped by city officials’ calculation of the electoral costs and benefits of different fiscal responses. A key conundrum faced by city officials is the observation that citizen's support for TEL is driven more by the desire for lower taxes rather than a reduction in public services (Alm and Skidmore ; Ladd and Wilson ). An additional consideration is the counter‐cyclical nature of government expenditures during an economic recession (Holcome and Sobel 1997), which in turn heightens the pressure to raise revenues or use other tools in the fiscal toolbox that will allow cities to meet increased citizen demand for city services.…”

Diffusion in Direct Democracy: The Effect of Political Information on Proposals for Tax and Expenditure Limits in the U.S. States

“…We use prior literature to guide our choice of covariates related to internal determinants of proposal (Alm and Skidmore 1999;Lowery and Sigelman 1981). For one, we expect a high tax burden to be positively associated with TELs.…”