Measuring Municipal Borrowing Costs: How Missing Cost Information Biases Interest Rate Calculations

A substantial literature exists on federal tax expenditures, but almost no empirical research has been done on state tax expenditures. This article examines Michigan tax expenditures, with an emphasis on comparison to findings from the federal level. Three major topics are addressed: (1) allocation of resources by policy area, (2) distribution of tax expenditure benefits by income class, and (3) tax expenditure growth over time. Only the findings on resource allocation are consistent with findings from the federal level, suggesting that simple theories may be insufficient to systematically describe tax expenditures.     

Tax Expenditure Budgets, Budget Policy, and Tax Policy: Confusion in the States

A tax expenditure budget should contribute to efficient and effective public decisions by quantifying the division in the tax structure between provisions that represent revenue policy (distribute the cost of government according to the legislated tax base) and parts that represent budget policy (substitute for direct spending). For this transparency to have the desired impact, however, the tax expenditure budget process and the direct expenditure process must be properly integrated and the tax expenditure budget must make an accurate division between the parts of the tax structure. A review of the 33 states with tax expenditure systems shows many weaknesses in application of the concept and poor linkage to the direct spending budget system. Their most significant flaw is in dividing the tax structure into normal and preference elements; states need greater attention to defining their basic tax structure if they are to have a meaningful tax expenditure budget.     

An Evaluation of Alternative Tax and Expenditure Limitation Policies on Kansas Local Governments

Cross-sectional time series data in a partial adjustment model are used to examine county government fiscal behavior under a "hard" tax and expenditure limitation policy, an aggregate property tax levy limit, versus a "soft" limit under Truth in Taxation in Kansas. Results indicate that under the aggregate levy limit, per capita property taxes, own-source revenues and own-source expenditures were significantly higher than under the Truth in Taxation policy where local officials face many fewer restrictions on their ability to raise the levy.     

Surplus Expenditures: A Case Study of Colorado

In this study the concept of surplus expenditures is introduced, and a theory of surplus expenditures is explored. The study examines the disposition of surplus revenues that emerged from the imposition of a binding tax and spending limit in Colorado. The study concludes that the accumulation of surplus revenue requires a major overhaul of budgetary reporting and decision making to reflect the impact of binding tax and spending limits on the budgetary process. The reporting recommendations are designed to make the budget more transparent and provide both taxpayers and legislators the information they need to make more rational decisions. The policy recommendations explore options for a more efficient and equitable disposition of surplus revenue.     

Budgeting Rules and Program Outcomes

It is not efficient for a budget system either to enable excessively frequent changes in programs and tax policies or to be rigid and unresponsive. Program durability is one measure of how a budget system weighs the competing goals of resoluteness and responsiveness. The federal budget has different processes—mandatory and discretionary spending and tax expenditures—each based in separate congressional committees and relying on separate procedures. This article examines the budget systems' durability. One finding is that mandatory spending programs and tax expenditures are more durable than programs backed by discretionary spending. However, while programs targeted to vulnerable populations and supporting long‐term planning, such as in income support and health, might benefit from durability, these programs display shorter durability, not longer. While displaying greater durability, tax expenditures do respond to changes in different economic sectors, based on the changes in spending of other budget systems.     

Interest group demand for taxation

Researchers have typically ignored the determinants of the tax structure of the public sector. Political scientists have concentrated their analyses on the expenditure side of the public ledgers while economists have avoided the issue by assuming that taxes are exogenously determined. In this paper we have shown that a behavioral model of political interest groups can be employed to gain insights into the political selection of taxes. The theory provides a general complement to the well-documented analysis of special interest demand for public expenditures.Our analysis raises several important policy questions. First, is the influence of interest groups on the determination of tax systems desirable from a public policy perspective? For example, special interest groups dominated by high and middle income individuals may prefer regressive tax systems which reduce their own tax burden. Certainly the impact of interest groups on the well-known regressivity of state and local tax systems is an area worthy of additional investigation.     

Controlling Nonconventional Expenditure: Tax Expenditures and Loans

Tax expenditures, credits and guarantees, and other nonconventional expenditures are prominent features of the public finances of the United States and other industrialized democracies. While reliable data on these practices have generally been available only for a decade or less, there is reason to believe that these types of transactions now constitute a larger share of total public expenditure than they did in the past. This article discusses the concepts arid implications of two types of nonconventional expenditures—tax expendituures and loans—as well as recent efforts to bring them within the scope of the budget process. The article deals mostly with American practices, but it also draws on the experiences of other democratic countries.     

Public Attitudes Toward Social Spending in the United States: The Differences Between Direct Spending and Tax Expenditures

This paper uses a survey experiment to examine differences in public attitudes toward ‘direct’ and ‘indirect’ government spending. Federal social welfare spending in the USA has two components: the federal government spends money to directly provide social benefits to citizens, and also indirectly subsidizes the private provision of social benefits through tax expenditures. Though benefits provided through tax expenditures are considered spending for budgetary purposes, they differ from direct spending in several ways: in the mechanisms through which benefits are delivered to citizens, in how they distribute wealth across the income spectrum, and in the visibility of their policy consequences to the mass public. We develop and test a model explaining how these differences will affect public attitudes toward spending conducted through direct and indirect means. We find that support for otherwise identical social programs is generally higher when such programs are portrayed as being delivered through tax expenditures than when they are portrayed as being delivered by direct spending. In addition, support for tax expenditure programs which redistribute wealth upward drops when citizens are provided information about the redistributive effects. Both of these results are conditioned by partisanship, with the opinions of Republicans more sensitive to the mechanism through which benefits are delivered, and the opinions of Democrats more sensitive to information about their redistributive effects.     

The Tax Revolt and Electoral Competition

This paper explores the effect of electoral competition onstate and local expenditures in the US during the politicalenvironment following the tax revolt of the late 1970s. Itutilizes a theoretical model in which both electoralcompetition and tax and expenditure limits impact spending.Empirical results indicate the tax revolt's primary impact wastransmitted through political candidate competition, notthrough the adoption of tax or expenditure limitations, as iscommonly believed. However, tax and expenditure limits doaffect public education expenditures.     

Effects of the Form of Government and Property Tax Limits on Local Finance in the Context of Revenue and Expenditure Simultaneity

This paper examines the impact of the form of government and state‐imposed property tax limits on municipal finance. We suggest that municipal revenues and expenditures are determined concurrently and estimate revenue and expenditure functions as simultaneous equations. We use the instrumental variable approach and fixed effects to address revenue and expenditure endogeneity. By testing the model on a cross‐section of rich municipal data for fiscal year 2002, we find evidence that revenues and expenditures are simultaneously determined, that potentially binding state‐imposed property tax limits effectively restrict local revenues and that the form of government is a significant predictor of local expenditures.     

Fiscal Policy,Deficits and Politics of Subnational Governments: The Case of the German Laender

The first part of the paper briefly describesinstitutional aspects of the German federal system andexamines the economic and fiscal performance of theGerman Laender since 1970. Taking into account theinstitutional settings, especially the fact that theGerman Laender cannot set tax rates individually, wedevelop a highly stylized model of subnationalgovernments that do not have access to the tax rateinstrument and thus have to use expenditures as apolicy variable. The model implies an expendituresmoothing policy of subnational governments andcomplements the famous tax smoothing model. Theempirical section examines whether governments ofvarious ideology show significant differences infiscal stabilization policy. Our results indicatethat regional differences in public debt accumulationand public expenditure policy in general is largelydetermined by interregional differences in economicperformance, whereas we do not find any significantimpact on the ideological composition of the Laendergovernments.     

Fiscal variables and growth: A cross-sectional analysis

This paper examines the impact of the key fiscal variables — taxes, expenditures, and deficits — on economic growth performance, using a reduced-form model and cross-sectional data for a sample of 76 developed and developing countries for the period 1972–81. Its simultaneous consideration of fiscal variables overturns the results of some existing studies. While taxes seem negatively associated with GDP growth, they are concommitant with a higher rate of growth when their benefits in terms of reducing deficits are taken into account. The positive association of government expenditures with GDP growth is rendered negative when their impact on deficits are factored in. Deficits are contractionary, and deficit-reducing tax increases and expenditure cuts are positively associated with growth. A balanced budget expansion of taxes and expenditures is negatively associated with growth. When separating the sample into low-, middle- and high-income countries, these results hold only for the second group indicating that the level of development influences the linkages between fiscal variables and GDP growth.The views expressed herein are those of the authors and should not be attributed to the World Bank or its affiliated organizations.     

Expenditures and receipts in state and local government finances: Comment

The aim of this note has been to show that Marlow and Manage's (1987) paper suffers from serious methodological problems due to the non-stationary data series used and the arbitrary lag lengths employed. Use of appropriate stationarity tests and optimal lag lengths of the variables change some of the basic conclusions of their paper. Contrary to their suggestion, the presence of a feedback between local tax receipts and expenditures imply that local governments should be concerned with the implication of their spending and revenue-enhancing decisions on their budget. Decisions to increase current expenditures may lead to higher future taxes. Similarly, efforts to impose higher taxes to reduce budget deficits at the local government level may be futile due to a subsequent increase in spending.     

The Effect of Tax and Expenditure Limitations on Revenue Volatility: Evidence from Colorado

Much of the research on tax and expenditure limitations (TELs) focuses on the impact that limits have on the size of the public sector or the distribution of expenditures at the state and local levels. While these results shed light on the extent to which TELs succeed in reducing government spending, they do not have much to say about the impact of TELs on government budgeting or financial planning, despite the fact that voters support TELs in the hope of reducing government inefficiency (Courant, Gramlich, and Rubinfeld 1980; Ladd and Wilson 1982). This paper examines the effect of TELs on the stability of government revenues; sound tax policy entails controlling the volatility of revenues in order to plan more effectively for the future. Using panel data from Colorado's Division of Local Government as well as the Census Bureau's Annual Survey of State and Local Government Finances, this paper examines the impact of Colorado's 1992 Taxpayer's Bill of Rights (TABOR) on local government finances. Results from difference‐in‐difference estimation suggest that TELs increase revenue and expenditure volatility.     

Tax Expenditures for Local Governments

Foregone revenues of state and local governments have been mostly unreported. This is still a neglected subject in governmental accounting. Such significant amounts can make a difference in the choice between direct and indirect spending, and more budget officers are expected to consider the tax expenditure report as a supplement to budget documents.     

New Hampshire's tax-base limits: An example of the Leviathan model

This study views the lack of an income tax on wages and salaries and a general sales tax in New Hampshire as tax-base limits. I use the Leviathan model to analyze the differences between the fiscal system in New Hampshire and the fiscal systems in Vermont, Maine, and Massachusetts. Vermont, Maine, and Massachusetts do not have the tax-base limits that New Hampshire has. From 1957 to 1989, New Hampshire had lower state and local government tax and expenditure levels than the other three states, more rapid population growth, lower welfare expenditures but comparable levels of expenditures for several of the major public services, and a more competitive structure of state and local government.     

State Budgetary Processes and Reforms: The California Story

This paper analyzes state budgetary processes and reforms to inform California budgetary policy. We consider key institutional provisions, including budget periodicity, tax and expenditure limitations, balanced budget and reserve requirements, and supermajority vote requirements, and analyze the extent to which changes are likely to advance procedural norms. Our analysis suggests that empirically unproven assumptions and poorly articulated linkages between budgetary processes and outcomes have undermined the state's ability to understand the budgetary problem and identify effective reforms. We recommend a focus on procedural norms and related reforms that promote effective budgeting processes as a less partisan framework for reform.     

Tax and Expenditure Limitations,Salary Reductions,and Public Employee Turnover

This study examines the relationship between salary and employee turnover behavior by analyzing a natural experiment created by the New Jersey Superintendent Salary Cap (NJSSC), which caused salary reductions for 25 percent of NJ superintendents in the initial year. I find that an additional $10,000 reduction in base salary due to the NJSSC corresponds to a 16 percent increase in the likelihood of superintendent turnover. This suggests salary expenditures are important public policy levers to retain employees. This study also contributes to prior research on tax and expenditure limitations (TELs) by documenting one of the first TELs placed directly on public employees.     

Evaluating the Evaluation Strategy as an Instrument for Budgetary Control

This article reports recent research undertaken on the contribution of program evaluation to that part of the budget process for which the Australian public service has carriage. It examines the degree of success which the Labor government's evaluation strategy attained in serving budget agency information purposes. The research is not conclusive, only indicative. Based on two sets of evidence — interviews with officers in the Department of Finance¹ and an analysis of survey results on the use of evaluation in the budget — it contends the evaluation strategy has had only a marginal impact on central budgetary processes. By documenting changes in the approaches of budget officials the article reports the impact of program evaluation on the core function of Finance — the provision of policy advice relating to the expenditure priorities of government.     

Does legislative turnover adversely affect state expenditure policy? Evidence from Indian state elections

The effect of legislative turnover on the size and composition of government expenditures in Indian states over the 1980?C2000 period is examined. The paper finds that excessive turnover in Indian state elections results in inefficient government expenditure policy. First, the higher the turnover, the larger the government size. Second, excessive turnover affects the allocative efficiency of government expenditures by skewing the composition of government spending toward pure consumption and away from more productive investment expenditures. Third, the effect of turnover on fiscal policy is not linear; public consumption expenditure is convex in turnover, while public investment expenditure is concave in turnover.