The effects of tax and expenditure limitation (TEL) stringency on the level of state expenditure and revenue

Abstract

This article employs a state and local tax and expenditure limitation (TEL) stringency (restrictiveness) index to examine the effects of TEL stringency on the levels of total expenditure, direct general expenditure, total own source revenue, and general own source revenue by analyzing a panel dataset of the 48 contiguous US states for 1977–2006. The findings indicate that a more stringent state TEL results in a reduction in total state spending. However, it does not reduce direct general spending. The findings also show that a more stringent state TEL does not lead to a reduction of state revenue collection. The findings suggest that the level of stringency of a state TEL has little or no effect on the level of either state expenditure or revenue, confirming results from previous literature that state TELs are largely ineffective in controlling state budgets. Points for practitioners The findings of this study provide important policy implications for professionals working in public management and administration. Politicians and state government officials need to reconsider enacting state TELs to use as a tool for the reduction of the size of state government because the findings in this study clearly indicate that a more stringent state TEL does not result in a reduction of state expenditure or revenue. This study and others suggest that state TELs are largely ineffective in controlling expenditure and revenue levels. However, local TELs are quite effective, and thus, policy coordination must follow in designing appropriate state and local TELs.