Abstract
State and local government spending has grown at a remarkable pace in the years since World War II. Many states have attempted to arrest this growth by adopting tax or expenditure limitations (TELs). These are formal rules – either codified in statutes or in state constitutions – that limit the growth of government budgets by a particular formula. Twenty-seven states currently operate under TELs, though there is considerable variation in their design and application. In this paper, I examine the impact of TELs on government spending. I focus on the details of their design and on the circumstances in which they are applied. I find that some varieties of TELs can decrease state spending as a share of state income, but the effect is small – in the range of about 2 to 3 percent. Some TELs, such as the most common variety, are associated with less spending in low-income states but are actually associated with more spending in high-income states. Certain characteristics can make TELs more effective. These include constitutional (as opposed to statutory) codification, a focus on spending rather than on revenue, a provision that automatically and immediately refunds surpluses, and – of particular importance – a provision that requires either a super-majority vote or a public vote for override.
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