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Spending within limits: Evidence from municipal fiscal restraints

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  • Leah Brooks
  • Yosh Halberstam
  • Justin Phillips

Abstract

This paper studies the role of a constitutional rule new to the literature: a limit placed by a city on its own ability to tax or spend. We find that such a limit exists in at least 1 in 8 cities, and that limits are not adopted in response to high levels of or variability in taxation. After limit adoption, municipal revenue growth declines by 16 to 22 percent. Our results suggest that institutional constraints may be effective when representative government falls short of the median voter ideal.

Suggested Citation

  • Leah Brooks & Yosh Halberstam & Justin Phillips, 2012. "Spending within limits: Evidence from municipal fiscal restraints," Finance and Economics Discussion Series 2012-52, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgfe:2012-52
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    References listed on IDEAS

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    1. Fernando Ferreira & Joseph Gyourko, 2009. "Do Political Parties Matter? Evidence from U.S. Cities," The Quarterly Journal of Economics, Oxford University Press, vol. 124(1), pages 399-422.
    2. Alberto Alesina & Reza Baqir & William Easterly, 1999. "Public Goods and Ethnic Divisions," The Quarterly Journal of Economics, Oxford University Press, vol. 114(4), pages 1243-1284.
    3. Anthony Downs, 1957. "An Economic Theory of Political Action in a Democracy," Journal of Political Economy, University of Chicago Press, vol. 65, pages 135-135.
    4. Downes, Thomas A. & Dye, Richard F. & McGuire, Therese J., 1998. "Do Limits Matter? Evidence on the Effects of Tax Limitations on Student Performance," Journal of Urban Economics, Elsevier, vol. 43(3), pages 401-417, May.
    5. Downes, Thomas A. & Figlio, David N., 1999. "Do Tax and Expenditure Limits Provide a Free Lunch? Evidence on the Link Between Limits and Public Sector Service Quality," National Tax Journal, National Tax Association, vol. 52(n. 1), pages 113-28, March.
    6. James Alm & Mark Skidmore, 1999. "Why do Tax and Expenditure Limitations Pass in State Elections?," Public Finance Review, , vol. 27(5), pages 481-510, September.
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    Cited by:

    1. Stephen Coate, 2014. "Optimal Fiscal Limits," NBER Working Papers 20643, National Bureau of Economic Research, Inc.
    2. Mark Gradstein, 2017. "Self-Imposition Of Public Oversight," Working Papers 1711, Ben-Gurion University of the Negev, Department of Economics.
    3. repec:eee:poleco:v:51:y:2018:i:c:p:69-92 is not listed on IDEAS
    4. Heinemann, Friedrich & Moessinger, Marc-Daniel & Yeter, Mustafa, 2015. "Do Fiscal Rules Constrain Fiscal Policy? A Meta-Regression-Analysis," Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 112800, Verein für Socialpolitik / German Economic Association.
    5. repec:spr:ecogov:v:19:y:2018:i:1:d:10.1007_s10101-017-0198-4 is not listed on IDEAS

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