The Impact of the Tax Revolt Era State Fiscal Caps: A Research Update

Abstract

Fiscal caps, the most common form of fiscal limit adopted during the tax revolt era, are again on the agendas of state government. In this article, we evaluate the claims made by cap supporters and opponents by examining the impacts of caps adopted during the tax revolt. Updating Lowery and Cox's (1990) analysis of the impact of state fiscal caps through 1991 using a comparative state, interrupted time‐series design, we find some evidence—albeit very weak—that fiscal caps may have modestly reduced the size of government and no evidence that they have been evaded through budget end‐runs.

Institutional Constraints, Rule-Following and Circumvention: Tax and Expenditure Limits and the Choice of Fiscal Tools During a Budget Crisis

“…A long list of studies has examined the primary justification for the enactment of TELs, which is to control the growth and size of government. Research at the state level shows that TELs have been largely ineffective at controlling expenditures or revenues [see King-Meadows and Lowery (1996), Kousser, McCubbins, and Moule (2008), and Mullins and Joyce (1996), among others. For a different conclusion, see Kioko and Martell (2012)].…”

The Effect of Tax and Expenditure Limitations on Revenue Volatility: Evidence from Colorado

“…While most of the early studies concluded that TELs have little to no effect on state fiscal policy, more recent research began to find evidence of a modest impact. King‐Meadows and Lowery () examined state and local revenues as a percentage of state personal income to determine whether tax‐revolt era state fiscal caps effectively reduced the size of government. Their analysis built on earlier research by Cox and Lowery () that studied three pairs of matched states and found no evidence that TELs affect the total level of state and local expenditures.…”

Institutional Constraints, Rule‐Following, and Circumvention: Tax and Expenditure Limits and the Choice of Fiscal Tools During a Budget Crisis

“…A long list of studies has examined the primary justification for the enactment of TELs, which is to control the growth and size of government. Research at the state level shows that TELs have been largely ineffective at controlling expenditures or revenues [see King‐Meadows and Lowery (), Kousser, McCubbins, and Moule (), and Mullins and Joyce (), among others. For a different conclusion, see Kioko and Martell ()].…”