How does the stringency of state tax and expenditure limitations influence opportunistic taxation?

Abstract

ABSTRACT Elected politicians often adopt fiscal policies to secure (re-)election, sometimes diverging from voter interests by altering revenue streams. Recent research indicates that contextual factors may curb such opportunistic taation, yet the impact of state-level tax and expenditure limitations (TELs) on this behavior remains debatable. We contend that TELs may prevent revenue manipulation linked to electioneering. Analyzing panel data from 45 U.S. states from 1980 to 2023, we observed electoral influences on taxes (sales, excise, and income) and non-tax revenues (charges and fees) where TELs are absent, and a suppression of these influences under stringent TELs. Contrary to previous findings, our results demonstrate TELs’ effectiveness in reducing political manipulation of fiscal measures, suggesting significant implications for understanding the interplay between fiscal institutions and political budget cycle.