State fiscal constraint and local overrides: a regression discontinuity design estimation of the fiscal effects

Abstract

Despite abundant evidence regarding the influence of US state-imposed tax and expenditure limitations on local governments, the causes and consequences of local overrides remain largely unexplored. This article comprehensively examines the fiscal effects of local overrides of Massachusetts’s state-enforced property tax limit. Existing evidence has shown that pressure from powerful local interest groups, such as public schoolteachers and public employees, is crucial for determining agenda-setting and the successes or failures of measures overriding the statewide property tax limit. In that sense, fiscal constraints are able to curb bureaucrats’ budget-maximizing behaviors. Empirically, a regression discontinuity design estimation shows that local property tax limit overrides increase local property taxes and total revenues, decentralize the state–local fiscal relationship, and improve local budgetary balance. However, overrides do not affect local government spending.