Economics of Governance

, Volume 8, Issue 2, pp 111–128 | Cite as

Party alternation, divided government, and fiscal performance within US States

Original Paper

Abstract

The literature on US state government fiscal performance has examined the role of institutional factors such as budget rules and divided government, but has largely ignored the impact of party alternation. This paper primarily focuses on whether party alternation in the governor’s office affects fiscal performance. Our hypothesis is that frequent party changes create a political environment that impacts fiscal performance. To further assess the impact of party alternation on fiscal performance, we consider our primary hypothesis in conjunction with the degree of division that exists between the governor’s office and the legislature. Using panel data from 37 states between 1971 and 2000 we test the hypothesis that frequent party alternation can be expected to affect fiscal performance and find strong support for the hypothesis.

Keywords

Fiscal performance State government Party alternation 

JEL Classification

D72 H72 

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. Alesina A, Perotti R, Giavazzi F, Kolintzas T (1995) Fiscal expectations and adjustments in OCED countries. Econ Policy 10(21):205–248CrossRefGoogle Scholar
  2. Alesina A, Tabellini G (1990) A positive theory of deficits and government debt. Rev Econ Stud 57:403–414CrossRefGoogle Scholar
  3. Alt JE, Lowry RC (1994) Divided government, fiscal Institutions, and budget deficits: evidence from the states. Am Polit Sci Rev 88(4):811–828CrossRefGoogle Scholar
  4. Alt JE, Lowry RC (2000) A dynamic model of state budget outcomes under divided Partisan government. J Polit 62(4):1035–1069CrossRefGoogle Scholar
  5. Besley T, Case A (1995) Does electoral accountability affect economic policy choices? Evidence from Gubernatorial term limits. Q J Econ 110(3):769–798CrossRefGoogle Scholar
  6. Besley T, Case A (2003) Political institutions and policy choices: evidence from the United States. J Econ Lit 41:7–73CrossRefGoogle Scholar
  7. Buchanan JM, Rowley CK, Tollison RD (eds) (1986) The political economy of budget deficits. Basil Blackwell Inc., New YorkGoogle Scholar
  8. Crain WM, Tollison RD (1993) Time inconsistency and Fiscal policy empirical analysis of U.S. States, 1969–89. J Public Econ 51:153–159CrossRefGoogle Scholar
  9. Clingermayer JC, Wood BD (1995) Disentangling patterns of state debt financing. Am Polit Sci Rev 89(1):108–120CrossRefGoogle Scholar
  10. Davidson R, MacKinnon JG (1993) Estimation and inference in econometrics. Oxford University Press, New YorkGoogle Scholar
  11. Ford GS, Jackson JD (1998) On the interpretation of policy effects from estimates of simultaneous systems of equations. Appl Econ 30:995–999CrossRefGoogle Scholar
  12. Grilli V, Masciandaro D, Tabellini G, Malinvaud E, Pagano M (1991) Political and monetary institutions and public financial policies in the industrial countries. Econ Policy 6(13):341–392CrossRefGoogle Scholar
  13. Hausman J (1978) Specification test in econometrics. Econometrica 46:1251–1271CrossRefGoogle Scholar
  14. Hou Y, Smith DL (2005) A Framework for understanding state balanced budget requirement systems: re-examining distinctive features and an operational definition. Available at SSRN: http://ssrn.com/abstract=868521Google Scholar
  15. Johnson JM, Crain MW (2004) Effects of term limits on Fiscal Performance: evidence from democratic nations. Public Choice 119(1–2):73–90CrossRefGoogle Scholar
  16. Kydland F, Prescott E (1977) Rules rather than discretion: the inconsistency of optimal plans. J Polit Econ 3:473–492Google Scholar
  17. Lowry RC, Alt JE, Ferree KE (1998) Fiscal policy outcomes and electoral accountability in American States. Am Polit Sci Rev 92(4):795–774CrossRefGoogle Scholar
  18. Perrson T, Svenson L (1989) Why stubborn conservatives run deficits: policy with time-inconsistent preferences. Q J Econ 85:325–345CrossRefGoogle Scholar
  19. Pindyck RS, Rubinfeld DL (1998) Econometric models and economic forecasts, 4th edn. Irwin McGraw-Hill, BostonGoogle Scholar
  20. Poterba JM (1994) Capital budgets, borrowing rules, and state capital spending. J Public Econ 56:165–187CrossRefGoogle Scholar
  21. Poterba JM (1995a) Balance budge rules and Fiscal policy: evidence from the states (A New Agenda-Old Constrains). Natl Tax J 48(3):329–336Google Scholar
  22. Poterba JM (1995b) State responses to Fiscal crises: the effects of budgetary institutions and politics. J Polit Econ 102(4):799–821Google Scholar
  23. Reed RW (2005) Democrats, republicans, and taxes: evidence that political parties matter. J Public Econ (forthcoming)Google Scholar
  24. Roubini N, Sachs JD (1989) Political and economic determinants of budget deficits in the industrial democracies. Eur Econ Rev 33:903–938CrossRefGoogle Scholar
  25. Roubini N, Sachs JD, Honkapohja S, Cohen D (1989) Government spending and budget deficits in the industrial democracies. Econ Policy 4(8):99–132CrossRefGoogle Scholar
  26. Rowley CK, Shughart WF, Tollison RD (eds) (2002) The Economics of budget deficits, 2 vols. In: Blaug M (ed) International library of critical writings in economics 153. Edward Elgar, Cheltenham, NorthamptonGoogle Scholar
  27. Rumi C (2003) Political determinants of Fiscal performance for the Argentine provinces. Paper presented at the Annual Public Choice Society Meeting BaltimoreGoogle Scholar
  28. Razzolini L, Shughart WF (1997) On the (Relative) unimportance of a balanced budget. Public Choice 90:215–233CrossRefGoogle Scholar
  29. United Nations (2004) Human development report 2004. Oxford, New YorkGoogle Scholar
  30. Von Hagen J (1991) A note on the empirical effectiveness of formal Fiscal restraints. J Public Econ 44:199–210CrossRefGoogle Scholar
  31. Wooldridge J (2002) Econometrics of cross section and panel data. MIT Press, CambridgeGoogle Scholar

Copyright information

© Springer-Verlag 2006

Authors and Affiliations

  1. 1.Department of Economics and FinanceCollege of CharlestonCharlestonUSA
  2. 2.Department of EconomicsFlorida Atlantic UniversityBoca RatonUSA

Personalised recommendations