Fiscal Discipline: State and Local Government Spending

Applied Research Capstone
Jan Blustein and Dick Netzer
Lisa Cole, Alison Freiman, Pamela Hannigan, Aamir Raza

The Capstone team explored the impact of fiscal institutions on state and local government spending growth since the tax revolt of the late 1970s. Prior research has produced mixed results, which may have been compromised by the fact that these institutions are not fixed but can be changed by voters and legislatures. Using historical information on direct legislation provisions in each state, the Capstone team separated the constraining effects of state fiscal institutions from the changes in underlying voter preferences that could have led to their passage but may not have played the causal role. The Capstone team also studied the extent to which any observed state spending reductions in state government spending growth are offset by additional local spending or transfers of fiscal responsibilities to special districts, and possible implications for public choice.