Economic Effects of State‐Level Tax and Expenditure Limitations

Abstract

As a result of devolution, state governments have taken on greater responsibility for financing and providing public services. Increasingly, states have adopted state‐level tax and expenditure limitations (TELs) to manage the growth and size of state budgets. The adoption of TELs is supported by claims that they have a positive effect on state economies, although such claims lack empirical evidence and have been contested by several scholars. Despite the ongoing debate about validating the actual economic effects of state‐level TELs, there is a lack of empirical assessments of their effects. The empirical results of this article indicate that the presence of state‐level TELs has a negative effect on the level of employment but no effect on the state's personal income per capita. The presence of state‐level TELs has no effect on either the growth of personal income per capita or the growth of employment.