The Impact of Tax and Expenditure Limitations on Municipal Revenue Volatility

Abstract

Stable revenue flows are paramount for policy makers at all levels of government in order to effectively and efficiently provide goods and services to constituents. This work examines the relationship between tax and expenditure limitations (TELs) and municipal revenue volatility. The current literature suggests that more stringently binding TELs at the state level are associated with greater levels of revenue volatility. This work tests whether this finding extends to the local level of government as well. Examining ninety-nine municipalities over eight years (2004–2011), this work provides evidence that the stringency level of TELs is associated with reduced fluctuations in municipal revenue streams.