For Whom the TEL Tolls: Can State Tax and Expenditure Limits Effectively Reduce Spending?

49 Pages Posted: 11 Jun 2008  

Thad Kousser

University of California, San Diego (UCSD) - Department of Political Science

Mathew D. McCubbins

Department of Political Science and Law School, Duke University

Ellen Seljan

Lewis & Clark College

Date Written: 2008

Abstract

Can voters stop state governments from spending at high rates through the enactment of tax and expenditure limits (TELs), or do these laws become dead letters? We draw upon the principal-agent literature to theorize that TELs - one of the most frequent uses of the initiative process across the country - may be circumvented by the sorts of elected officials who would inspire their passage.

In order to investigate our claim, we conduct an event study. First, we test for the effectiveness of TELs across states using a differences-in-differences model. Second, we dissect our treatment variable using different legal provisions of the limits to test whether there is a uniform effect across different types of TELs. Finally, we compare state fiscal patterns before and after adoption on a state-by-state basis. Using this simple approach and other methods, we show that TELs are largely ineffective, and that state officials can circumvent them by raising money through fees or borrowing. Our finding is consistent with recent studies showing that policies passed through direct democracy can often be thwarted by the politicians charged with implementing them.

Keywords: tax and expenditure limits, initiatives, referenda, agency problems, state politics

Suggested Citation

Kousser, Thad and McCubbins, Mathew D. and Seljan, Ellen, For Whom the TEL Tolls: Can State Tax and Expenditure Limits Effectively Reduce Spending? (2008). Available at SSRN: https://ssrn.com/abstract=1143027 or http://dx.doi.org/10.2139/ssrn.1143027

Thad Kousser

University of California, San Diego (UCSD) - Department of Political Science ( email )

9500 Gilman Drive
Code 0521
La Jolla, CA 92093-0521
United States

Mathew D. McCubbins (Contact Author)

Department of Political Science and Law School, Duke University ( email )

210 Science Drive
Box 90362
Durham, NC 27708
United States

Ellen Seljan

Lewis & Clark College ( email )

0615 SW Palatine Hill Road
Portland, OR 97204
United States

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