Electoral Cycles and the Politics of State Tax Policy

Abstract

This article contributes to the empirical literature on the political economy of tax policy through the use of a panel data set on statutory rate changes and new tax adoptions by state governments during the postwar period. A principal finding is that there is little evidence in support of recent models of political policy cycles that emphasize the use of short-run fiscal policy instruments (such as a tax cut) as an election draws near to enhance reelection prospects. The timing of tax increases is clearly linked with election cycles, however, with the largest share of rate increases and new adoptions occurring during the first year of a governor's term in office. Also examined is the political consequence of state tax policy actions. Evidence is presented showing that voters tend to blame governors more than the legislature for rate increases on broad-based taxes, especially for increases enacted in an election year.