A Note On the Political Economy of Indexation

Abstract

Utilizing three U. S. Senate votes on indexation, this article statistically examines the relationship between public spending tendencies of legislators and their votes on indexing the tax code. Heretofore, the public finance literature has argued that periodic discretionary tax cuts have offset past inflation-induced bracket creep. A problem with discerning whether discretionary tax cuts offset bracket creep, however, is that one's conclusion is sensitive to the base year from which one indexes. Looking at public spending tendencies and voting patterns on indexation represents an alternative approach to the issue. If government naturally rebates inflation-induced revenue gains, support for or opposition to indexation would not be associated with senators' spending tendencies, since indexation per se would have no impact on the size of the funded budget. This study shows, however, that the more liberal are senatorial spending tendencies, the greater is the likelihood of opposition to indexation.