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

  • Leandro M. De Magalhães
  • Lucas Ferrero

    ()

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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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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  1. Persson, T. & Roland, G. & Tabellini, G., 1997. "Comparative Politics and Public Finance," Papers 633, Stockholm - International Economic Studies.
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  8. Esteban Klor, 2002. "A Positive Model of Overlapping Income Taxation in a Federation of States," Wallis Working Papers WP32, University of Rochester - Wallis Institute of Political Economy.
  9. Imbens, Guido W. & Lemieux, Thomas, 2008. "Regression discontinuity designs: A guide to practice," Journal of Econometrics, Elsevier, vol. 142(2), pages 615-635, February.
  10. 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.
  11. Besley, Timothy J. & Case, Anne, 2002. "Political Institutions and Policy Choices: Evidence from the United States," CEPR Discussion Papers 3498, C.E.P.R. Discussion Papers.
  12. David S. Lee & Thomas Lemieux, 2009. "Regression Discontinuity Designs in Economics," NBER Working Papers 14723, National Bureau of Economic Research, Inc.
  13. Hahn, Jinyong & Todd, Petra & Van der Klaauw, Wilbert, 2001. "Identification and Estimation of Treatment Effects with a Regression-Discontinuity Design," Econometrica, Econometric Society, vol. 69(1), pages 201-09, January.
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