Do Term Limits Restrain State Fiscal Policy? Approaches for Causal Inference in Assessing the Effects of Legislative Institutions

Abstract

Scholars of state politics are often interested in the causal effects of legislative institutions on policy outcomes. For example, during the 1990s a number of states adopted term limits for state legislators. Advocates of term limits argued that this institutional reform would alter state policy in a number of ways, including limiting state expenditures. We highlight a number of research design issues that complicate attempts to estimate the effect of institutions on state outcomes by addressing the question of term limits and spending. In particular, we focus on (1) treatment effect heterogeneity and (2) the suitability of nonterm-limit states as good counterfactuals for term-limit states. We compare two different identification strategies to deal with these issues: differences-indifferences (DID) estimation and conditioning on prior outcomes with an emphasis on synthetic case control. Using more rigorous methods of causal inference, we find little evidence that term limits affect state spending. Our analysis and results are informative for researchers seeking to assess the causal effects of state-level institutions.Scholars of state politics often study how legislative institutions affect policy outcomes (e.g., Besley and Case 2003). In other words, do the "rules of the game" influence the behavior of political actors and their choices? In recent years, particular interest has been paid to the effects of legislative term limits on fiscal policy. The 1990s witnessed increased popular pressure to deprofessionalize legislatures via term limits, with a corollary claim that term limits might restrain the growth of government with the return of the "citizen legislator." Proponents claimed term limits, like tax reform initiatives, would help put an end to wasteful government spending, reduce the amount of pork being passed through the legislature, and curtail the size and scope of the government. Specifically, term limits were supposed to remove the incentive for legislators to procure funds for interest groups, since legislators would no longer be beholden to lobbyists within the representative's short time in office. While term limits were never enacted at the national level in the United States, advocates were successful at implementing term limits in state legislatures, with 20 states imposing limits between 1990 and 2000. 1 We have now observed over a decade of fiscal policy outcomes since the imposition of term limits, allowing us to assess if term limits have restrained spending.The variation in the adoption of term limits at the state level presents an obvious opportunity to comparatively study the effects of term limits on fiscal policy. However, analyzing the population of states presents challenges as well. Although the states share cultural and historical similarities, the political, economic, social, and demographic heterogeneity at the state level is enormous. Thus, one challenge we always face in comparative analyses of state legislative institutions is one of selection. That is, some states selected...

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