The line item veto and public sector budgets: Evidence from the states

Abstract

The paper examines the claim that gubernatorial line item veto power reduces state spending. Analysis of a rich set of state budget data indicates that long run budgets are not altered by an item veto and that, in the short run, the item veto's potency is contingent upon the political setting. In certain circumstances, governors with political incentives to use an item veto alter spending and revenues in a statistically significant and quantitatively important fashion. These results suggest that state budgets have not been importantly altered as a result of the existence of the line item veto and shed doubt on the use of the line item veto to reduce federal government spending.