The Governance of Fiscal Policy in the United Kingdom and Canada

This article analyzes the governance of fiscal policy in the United Kingdom and Canada under the Blair Government and the Chrétien Government. It seeks to identify whether the capacity of the core executive to steer fiscal policy has been “hollowed out.” The conclusion drawn is that in both the United Kingdom and Canada, far from having been hollowed out, there has actually been a strengthening of the capacity of the Treasury and the Department of Finance, respectively, to steer fiscal policy.     

Fiscal Capacity and Tax Effort of the American States: Trends and Issues

The author examines the historic context of state taxing power and fiscal capacity, and the current efforts of the U.S. Advisory Commission on Intergovernmental Relations to measure fiscal capacity and tax effort using a Representative Tax System (RTS). The two most commonly used methods of distributing federal aid to states are population and personal income, both incomplete measures of fiscal capacity. RTS estimates how much revenue each state and its localities would raise if it levied the national average tax rate for commonly used state and local taxes. The author considers the strengths and weakness of RTS as a measure of fiscal capacity and examines state rankings and trends since 1975.     

Fiscal Capacity, Fiscal Need, and Fiscal Comfort among U.S. States: New Evidence

During its lifetime, the U.S. Advisory Commission on IntergovernmentalRelations periodically published estimates of each state's relativefiscal capacity. This research note provides new estimates updatedto fiscal year 1994, the latest year for which all requisiteunderlying data are available. We find that dispersion in capacitynarrowed from 1987 to 1994, largely because the capacities ofCalifornia and the Northeast states, historically enjoying amplecapacity, fell relative to the national average. We also findthat these states generally experienced an increase in relativefiscal need, further narrowing interstate dispersion in fiscalcomfort (capacity relative to need). We conclude with evidencesuggesting that states with low fiscal comfort generally preferrelatively low levels of state and local public services.     

Vox Populi? Oregon Tax and Expenditure Limitation Initiatives

This article provides a brief history of tax and expenditure limitation initiatives in Oregon, along with a narrative of contemporary events. Largely as a consequence of the initiative's increased role in the formulation of Oregon's fiscal policy, state and local taxes paid by Oregon households declined from 7.4 percent of income in 1989 to 6.8 percent in 2003; state revenue, which is heavily dependent upon personal income taxes, has become increasingly income elastic; and state and local governments now rely on user fees to an almost unprecedented degree.     

Tax Competition and Tax Coordination in a Median Voter Model

This paper analyzes the welfare effects of capital tax coordination in a simple model of fiscal competition where fiscal policy is subject to majority voting and households differ with respect to their labor and capital income. It turns out that a coordinated capital tax increase may raise or reduce welfare, depending on the relative magnitude of i) economic distortions induced by a labor tax and ii) political distortions resulting from the influence of the median voter on fiscal policy decisions. A negative welfare effect is more likely, the smaller the marginal excess burden of the labor tax and the smaller the ratio of the median voter's labor income to average labor income. We also use empirical estimates of the marginal excess burden of taxation to determine the welfare effects of tax coordination; it turns out that a negative welfare effect of coordinated tax increases may emerge in our model for empirically reasonable parameters.     

Revisiting the Income Tax Effects of Legalizing Same‐Sex Marriages

In this paper we estimate the impacts on income tax collections of legalizing same‐sex marriage. We utilize new individual‐level data sources to estimate the federal income tax consequences of legalizing same‐sex marriages. These data sources also allow us to estimate the impact of legalization on state income tax collections. We find that 23 states would realize a net fiscal benefit from legalization, while 21 states would experience a decline in revenue. The potential (annual) changes in state tax revenue range from negative $29 million in California to positive $16 million in New York. At the federal level, our estimates suggest an overall reduction in revenues, ranging from a potential loss of $187 million to $580 million. Overall, we find that the federal and state impacts are quite modest. We also find that our estimates are only marginally affected by alternative assumptions about how many same‐sex couples will choose to marry and which partner will claim any children for tax deduction purposes.     

The convergence of fiscal regimes and the decline of the Tiebout effect

A measure of waste from the competitive rent-seeking activity of special interest groups in federal, state and local budgets was calculated over the period 1900–88. This period in U.S. fiscal history is characterized by constitutional changes that have made for more transparency in governmental fiscal activities and for greater diffusion of taxes. The XVI Amendment to the Constitution created the progressive individual income tax (the corporate income tax was judged to be an excise tax in 1909 and passed the test of constitutionality). High marginal tax rates are a justification for a high average level of taxation. The Full Employment Act of 1946 insitutionalized government deficits as a means of meeting a political objective. As a result, opportunities for rent-seeking through budgetary reallocations rose in the United States. In the first two decades of the 20th century, waste at all levels of government represented about 10 percent of incremental national output. Today, waste is three times that amount.The transparency and diffusion of taxes are highest at the federal level and least at the local level. Rent-seeking through budgetary reallocation has followed the public purse. One explanation for the observed centralization of government in the 20th century may be that opportunities to concentrate benefits and diffuse taxes are highest at the federal level.     

Trouble Keeping Promises? An Analysis of Underfunding in State Retiree Benefits

This article examines the funding of two key components of state government total compensation: pensions and other postemployment benefits (OPEB), the latter consisting primarily of retiree health care. A brief overview of the economic, political, and legal environments of state pensions and OPEB is followed by an analysis of the unfunded liabilities for these respective benefits. Regression results suggest the importance of state management capacity, per capita income, and public employee density in understanding differences in the states' pension and OPEB funding performance. Additionally, employers' level of pension contributions, legislative professionalism, and fiscal constraint are significantly related to pension funding, while political ideology and levels of state pension funding are significantly related to OPEB funding. The article concludes by discussing the tensions that states face in attempting to balance the fiscal imperative of funding retiree benefits liabilities with the human capital challenge of attracting and retaining a professional workforce. Failure on either could be costly to state government.     

The early modern origins of contemporary European tax outcomes

What explains variation in tax outcomes between European states? Previous studies emphasise the role played by political institutions, but focus mostly on the input side of politics – how access to power and policy making is structured – and the institutions of relatively recent times. It is argued in this article that output‐side institutions related to the implementation of political decisions also matter and have deep institutional origins. As the classic literature has argued, the early modern period from 1450 to 1800 was formative for the development of fiscal capacity, but European states diverged in the stock of capacity they acquired. This article tests whether these differences still affect contemporary tax outcomes using a novel measure of fiscal capacity, based on the age, extent and quality of state‐administered cadastral records. The empirical analysis shows that, on average, countries with higher early modern fiscal capacity have higher tax revenue today, compared to countries with lower early modern fiscal capacity. This association is robust to different model specifications and alternative measurements. The findings have important policy implications as they indicate how deeply the current fiscal problems of the continent are entrenched, but also point to what needs to be prioritised within ongoing tax reforms.     

Structural Deficits and State Borrowing Costs

This study examines the factors that affect the borrowing costs of state governments with specific attention being paid to the impact of state structural deficits (or fiscal imbalances) on borrowing costs. The findings for 1999–2000 suggest that interest costs for state competitively sold municipal securities reflect estimates of state structural deficits. States with a higher structural deficit were found to pay significantly higher interest costs. The evidence implies that bond ratings do not fully reflect the fiscal problems faced by state governments.     

Reality and historicity: economy and dialectics in Marxism ∗

On 1 July 1997, the Basil Law of the Hong Kong Special Administrative Region (HKSAR) will be enacted in accordance with the Constitution of the People's Republic of China. Articles 107 and 108 of the Basic Law, the so-called balanced budget and low tax policy articles, are the two most controversial articles of the Chapter on Economy. The manifest purpose of these two articles is to constrain the spending and taxing power of the HKSAR in order to prohibit elected members of the Legislative Council from turning Hong Kong into a welfare state, and they have been justified by some ostensibly using Buchanan's concept of fiscal constitution. This paper examines the justification and effects of incorporating elements of fiscal constitution in the Basic Law, focusing particularly on the income redistribution effect. The paper concludes that policy articles grounded on the philosophy of fiscal constitution should not have been included.     

经济开放对地方财政收入规模及结构的影响实证分析

使用中国1999—2007年度省级面板数据,实证分析了经济开放对地方财政收入规模和内部相对结构变化的作用。研究表明:贸易开放度的提高显著增加了地方个人所得税、行为税、财产税和非税收入,整体上也引起地方财政总收入的增加;并使地方财政收入中个人所得税、财产税和非税收入比重上升,城建税收入比重下降。投资开放的提升显著增加了地方营业税、个人所得税、行为税、非税及预算外收入,同时减少了地方增值税和企业所得税收入,总体上对地方财政收入有负效应;并提高了地方财政收入中营业税、个人所得税、行为税、财产税、非税收入及预算外收入的比重。由于外资和外贸对经济及税基的作用差异、现行分税制、地方各项财政收入自身特征、地方政府基于多元目标为促进外资投资呈现出的策略行为等,使经济开放对地方各项财政收入规模及其相对结构的影响具有复杂和非一致性。     

Determinants of the probability and timing of commercial casino legalization in the United States

The adoption of lotteries by state governments has received significant attention in the economics literature, but the issue of casino adoption has been neglected by researchers. Casino gambling is a relatively new industry in the United States, outside Nevada and New Jersey. As of 2007, 11 states had established commercial casinos; several more states are considering legalization. We analyze the factors that determine a state’s decision to legalize commercial casinos, using data from 1985 to 2000, a period which covers the majority of states that have adopted commercial casinos. We use a tobit model to examine states’ fiscal conditions, political alignments, intrastate and interstate competitive environments, and demographic characteristics, which yields information on the probability and timing of adoptions. The results suggest a public choice explanation that casino legalization is due to state fiscal stress, to efforts to keep gambling revenues (and the concomitant gambling taxes) within the state, and to attract tourism or “export taxes.”     

Treasury and Economic Policy – Beyond the Dismal Science

‘Treasury advises and assists the Treasurer, and through him the Government, in the discharge of his and its responsibilities in relation to economic, fiscal and monetary matters. The Department's main responsibilities lie in the field of general economic management’, Treasury, Annual Report 1983. ‘The Treasury's mission is to improve the wellbeing of the Australian people by providing sound and timely advice to the Government, based on objective and thorough analysis of options, and by assisting Treasury ministers in the administration of their responsibilities and the implementation of government decisions’, Treasury, Annual Report 2010a . ‘You can't really evaluate the performance of Treasury in terms of “outputs and outcomes” in any formal or public way because most of the time we are dissuading Treasurers and governments from doing stupid things’, Senior Treasury Official 2000. ‘We once had a “Treasury line”, but now we are more pluralistic’, Senior Treasury Official 2010. ‘Treasury's executive board hunts as a pack, they trust each other and they’ve known each other for long times’, Senior Treasury Official 2010.     

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.     

Budget Deficits in the States: Connecticut

Like many states, the State of Connecticut has recently faced substantial budget problems. This article is one of several that explore budget deficits in the states. We explore the reasons, extent, and current solutions to the budget deficits in Connecticut. Connecticut's fiscal circumstances include very poor accounting practices; dueling revenue estimates; large amounts of debt (both bonded and for post-employment benefits); a structurally strong legislature and governor; a governor and legislative majority of different political parties and fiscal philosophies; and a legislature with the ability to override gubernatorial vetoes. The combination of these ingredients has led to a highly partisan and contentious approach to budget discussions amid some of the largest budget deficits the state has ever experienced.     

The Impact of Budget Stabilization Funds on State General Obligation Bond Ratings

This study examines the impact of budget stabilization funds (BSFs) on state general obligation (GO) bond credit ratings. While a number of past empirical papers have examined the effect of various fiscal institutions on state GO bond ratings; to date, BSFs have been largely ignored in the literature. Model estimates show that neither the choice to have a statutory BSF versus a constitutional BSF or the size of a BSF has any apparent impact on credit ratings. However, weak deposit rules are associated with lower credit ratings while weak withdrawal rules are associated with higher credit ratings.     

What Is Governance?

This commentary points to the poor state of empirical measures of the quality of states, that is, executive branches and their bureaucracies. Much of the problem is conceptual, as there is very little agreement on what constitutes high‐quality government. The commentary suggests four approaches: (1) procedural measures, such as the Weberian criteria of bureaucratic modernity; (2) capacity measures, which include both resources and degree of professionalization; (3) output measures; and (4) measures of bureaucratic autonomy. It rejects output measures and suggests a two‐dimensional framework of using capacity and autonomy as a measure of executive branch quality. This framework explains the conundrum of why low‐income countries are advised to reduce bureaucratic autonomy while high‐income ones seek to increase it.     

The disadvantaged incumbents: estimating incumbency effects in Indian state legislatures

This paper estimates the incumbency effects using a large dataset on state legislative elections in India during 1975–2003. I use a Regression Discontinuity Design (RDD) that estimates the causal effect of incumbency by comparing candidates in closely fought elections. I find that there is a significant disadvantage to incumbency in Indian State legislative elections, and the adverse effect of incumbency has increased after 1991. Also, the incumbency disadvantage is higher in states that have lower availability of public goods such as health centers, and lower employment, poverty and per capita income.     

Revenue Cyclicality and Changes in Income and Policy

The past two recessions have proved alarming to state government finances. In 2001, a relatively shallow national recession led to a severe downturn in state revenues that took three years to unwind. In the wake of the recent economic downturn, signs of fiscal stress are readily apparent. In this paper, we investigate whether the revenue patterns surrounding these two recessions are the result of state government revenues having grown more sensitive to economic conditions. We find that the responsiveness of revenues to measures of business cycle conditions has grown since the 1990s. We use data on state government revenues, state‐specific information on economic conditions, and measures of state policy to examine fiscal performance and budgeting practice over the economic cycle. Our findings suggest that increasing income cyclicality, in particular of investment income, has made state revenues more responsive to the business cycle since the mid‐1990s. We also find that changes in policy making have served to increase revenue cyclicality.