Balanced Budget Requirements and State Spending: A Long-Panel Study
Public Budgeting & Finance 33(2): 1-18.
Smith, Daniel L., and Yilin Hou.
This study tests the effects of balanced budget requirements on three measures of state expenditure using data on 48 states for the years 1950 to 2004. We find that the following rules are effective in constraining expenditures: 1) requiring that the governor submit a balanced budget; 2) placing controls on supplemental appropriations; and 3) prohibiting the carry-over of a deficit from one fiscal year or biennium into the next. The latter two rules exert larger individual effects than the first. All else equal, states can best improve their prospects of reigning in spending by instituting technical rules that govern budgetary outcomes, as opposed to political rules that dictate how the budget is assembled and approved.