Do Tax and Expenditure Limitations Affect Local Government Budgets? Evidence From Panel Data

Abstract

During the 1970s and 1980s, state governments imposed many new more restrictive tax and expenditure limitations (TELs) on local governments. Many theories have been advanced to explain the new wave of TELs. The majority of these explanations suggests that voters found local government had become larger than desired, and thus the intended effect was a reduction in government size and growth. The purpose of this study is to investigate empirically whether state-imposed local TELs have been successful in reducing both the size and growth of local government, as well as decreasing local government's reliance on the property tax. Anticipating the results, the author demonstrates, using a panel data set on local government budgets (1972-1992), the following two major points: (a) TELs decrease both the level and growth of expenditures and revenues and (b) TELs decrease the level and growth of property taxes.