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Budgetary Separation of Powers in the American States and the Tax Level: A Regression Discontinuity Design

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  • Leandro M. De Magalhães
  • Lucas Ferrero

    ()

Abstract

Should the Federal government and the remaining American states adopt the line item veto? What are its effects? We use regression discontinuity design to claim that in states with the line item veto, divided government has a causal negative effect on the tax level. By investigating a panel of 38 American states from 1960 to 2006, we estimate a significant discontinuous increase of 13% in the tax level as the party affiliated with the Governor in the state Legislature switches from being the minority party to being the majority. In the nine states that have block veto, we find no significant discontinuity in the tax level. We also find little evidence to suggest that the partisan identity of the majority party in the Legislature has a causal effect on the state tax level.

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Bibliographic Info

Paper provided by Department of Economics, University of Bristol, UK in its series The Centre for Market and Public Organisation with number 09/225.

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Length: 35 pages
Date of creation: Oct 2009
Date of revision:
Handle: RePEc:bri:cmpowp:09/225

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Keywords: Separation of powers; line item veto; tax level; regression discontinuity; nonparametric;

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  1. Reed, W. Robert, 2006. "Democrats, republicans, and taxes: Evidence that political parties matter," Journal of Public Economics, Elsevier, vol. 90(4-5), pages 725-750, May.
  2. Guido Imbens & Thomas Lemieux, 2007. "Regression Discontinuity Designs: A Guide to Practice," NBER Working Papers 13039, National Bureau of Economic Research, Inc.
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  7. Tim Besley, 2002. "Political institutions and policy choices: evidence from the United States," IFS Working Papers W02/13, Institute for Fiscal Studies.
  8. Gene M. Grossman & Elhanan Helpman, 2006. "Separation of Powers and the Budget Process," NBER Working Papers 12332, National Bureau of Economic Research, Inc.
  9. David S. Lee & Thomas Lemieux, 2010. "Regression Discontinuity Designs in Economics," Journal of Economic Literature, American Economic Association, vol. 48(2), pages 281-355, June.
  10. Klor, Esteban F., 2006. "A positive model of overlapping income taxation in a federation of states," Journal of Public Economics, Elsevier, vol. 90(4-5), pages 703-723, May.
  11. Fernando Ferreira & Joseph Gyourko, 2009. "Do Political Parties Matter? Evidence from U.S. Cities-super-," The Quarterly Journal of Economics, MIT Press, vol. 124(1), pages 399-422, February.
  12. Per Pettersson-Lidbom, 2008. "Do Parties Matter for Economic Outcomes? A Regression-Discontinuity Approach," Journal of the European Economic Association, MIT Press, vol. 6(5), pages 1037-1056, 09.
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