Capital Budgets, Borrowing Rules, and State Capital Spending
30 Pages Posted: 29 Dec 2006 Last revised: 30 Jul 2010
Date Written: December 1992
This paper uses cross-section data on the U.S. states to test the hypothesis that budgeting and borrowing rules affect the level and composition of public spending. It employs a 1963 data set with detailed information on state capital budgeting practices to compare capital spending in states that maintain separate budgets for capital and operating expenditures and states that employ a unified budget It also investigates the impact of financing rules, in particular pay-as-you-go rules for capital projects, on the level of spending. States with capital budgets tend to spend more on public capital, especially if they do not impose pay-as-you-go requirements for financing capital projects.
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