Spending rules, tax-expenditure limitations, and fiscal constraints on state governments

Abstract

Expenditure limitations on state government in the form of legislated spending rules have become an increasingly popular approach to restricting the size of the government sector. The longrun growth implications for government spending are not clear, however, since the legislative wording and quantification of the rules do not distinguish between nominal and real growth in critical benchmark variables. This paper analyzes the long-term growth implications of spending rules for a number of states in terms of, a) real and nominal changes, b) cyclical variations in government spending under conditions of inflation and deflation, and c) changes in the demand for state government output over time.