Budgetary Reform and Formal Modeling: A Comment on Gabel and Hager

In a recent article, Gabel and Hager argue that the line-itemveto and the balanced budget amendment promote (BBA) and mayincrease pork-barrel spending. In their discussion of thebalanced budget amendment, Gabel and Hager present one exampleto support their claim. I demonstrate that the effect of a BBAin their model is highly contingent on parameter values, andthat their results hold only for a specific set of parametervalues. Further, in a generalized model where the balancedbudget amendment is crafted endogenously, the BBA that isenacted has the effect of either decreasing spending orkeeping it constant.     

Instrument choice,political reform and economic welfare

The purpose of this paper is to formally examine the effect of placing constraints, such as the line-item veto or a balanced budget amendment, on legislative behavior. There are two basic findings that emerge from the analysis. First, constraints on one type of instrument, such as spending, will in general result in more widespread use of other kinds of instruments, such as regulation. Second, it is naive to conclude that constraints on legislative behavior will promote economic efficiency and/or reduce the growth of government. The primary contribution of the paper is to suggest how changes in the political environment can affect instrument choice, economic welfare, and the size of government.This research was supported in part by a grant from the National Science Foundation Decision, Risk and Management Science Program. The author gratefully acknowledges the helpful comments of Ed Campos and Allan Meltzer. The views in this paper are solely those of the author and do not necessarily reflect the views of the Council.     

Do governors get what they want?: An alternative examination of the line-item veto

This paper reconsiders the impact of the governor's line-item veto on the state budget process. The governor's ability to obtain his or her most desired budget measures item veto effectiveness, rather than a smaller expenditure budget. The percentage difference between the final state budget and the governor's original budget request over fiscal years 1983–1989 is examined. The empirical results indicate that under certain political situations the line-item veto authority enhances the governor's ability to obtain his or her desired budget.We would like to thank the Editors for helpful comments and suggestions.     

Executive veto power and credit claiming

The line-item veto has often be heralded as an effective tool in reducing pork barrel spending. A model of veto bargaining over public goods and pork barrel spending in the presence of credit claiming incentives demonstrates that the item veto does not necessarily reduce pork barrel spending and reduces the executive??s ability to attain his preferred level of spending on public goods. The item veto also has an ambiguous effect on the balance of power between the executive and the legislature while strengthening the position of the legislative agenda setter within the legislature.     

The Balanced Budget Amendment: How Would It Be Enforced?

In this article we evaluate the likely effect of enforcement provisions to congressional proposals for a constitutional balanced budget amendment. We define four general areas of enforcement: legislative, executive, judicial, and public opinion. Each of these areas is in turn evaluated along three criteria: political feasibility (can it be enacted and consistently implemented?), effectiveness (is it likely to result in “balance”?), and implications for redistribution of power across branches. We conclude from this analysis that there are limits associated with all balanced budget enforcement provisions. A reliance on one or no explicit enforcement provision would limit the credibility of any constitutional amendment. Ultimately, the enforcement of the amendment would inevitably rest on the commitment of legislators to producing a balanced budget, and in the absence of such a commitment, any enforcement provision would not likely succeed.     

President Clinton's Fiscal 1998 Budget: Political and Constitutional Paths to Balance

This article examines President Clinton's FY 98 budget proposals and the political and economic factors that led to the balanced budget agreement. Also explored are the constitutional approaches to fiscal discipline: the balanced budget amendment, the tax supermajority amendment, and the line item veto that was used 80 times by President Clinton to delete over a billion dollars. The analysis reveals that budget bargaining was continuous before and after the budget agreement was reached, moving downward from decisions on macro-budgetary totals to micro-budgetary choices on tax cuts and appropriations. The study concludes that President Clinton was relatively successful in achieving budgetary goals under divided government, that the agreement was significant despite the economic growth that made it easier, and that constitutional remedies will continue to be important in the coming years.     

Executive veto and spending limitation: Positive political economy with implications for institutional choice

The consequences of institutional change in the budgetary process are not generally determinate independent of the preferences of political actors. Nonetheless, this study shows for a general class of preference configurations that the legislative branch cannot be made better off by a spending limitation unless the executive is empowered with a line-item veto. In the absence of executive item-veto authority there is no incentive for the legislature to constrain spending.     

Check bouncing and fiscal irresponsibility: Evidence of nonideological shirking by legislators

Kalt and Zupan have measured ideological shirking by legislators. Here we present evidence concerning nonideological shirking. We demonstrate that representatives with more overdrawn checks tend to be more fiscally irresponsible, with fiscal irresponsibility measured by National Taxpayer Union ratings and by representatives' voting behavior on the recent House balanced budget amendment vote.     

The Line‐Item Veto in Georgia: Fiscal Restraint or Inter‐Branch Politics?

This article about use of the line‐item veto in Georgia concludes that the item veto has been used not as an instrument for reducing the budget total or the size of state government, but as an instrument for protecting the executive budget. Using appropriations data and drawing upon interviews with participants in the budget process, including seven governors, the authors present evidence that in Georgia the item veto (1) is not frequently used, (2) when used, is more likely to remove legislative language than delete dollar amounts, and (3) enables the spending priorities and fiscal policy preferences of the governor to prevail as state policy.     

On the pricing and benefit structure of a private club or public utility

In this study the structure-induced equilibrium approach for modeling democratic institutions is extended to allow for the added structural features of executive veto and legislative override. A multidimensional model is presented for a budgetary process involving three actors — a legislature, an appropriations committee, and an executive. In order to focus attention on the role of the veto and override possibilities, simplifying assumptions are made with regard to other aspects of the agenda formation process. In particular, the committee has monopoly agenda power, a closed amendment control rule is operative, and perfect-foresight expectations are held by the committee and the executive. Given these assumptions, utility maximization by the several actors generates a budget outcome characterized as a structure-induced equilibrium. The general model is illustrated geometrically with a two-dimensional example, permitting budget outcomes to be analyzed for various combinations of veto rules and override provisions. The analysis demonstrates that budget outcomes are sensitive to alternative specifications of veto rules and override provisions. In the illustration, executive veto power is shown to vary directly with both the permissiveness of the veto rule and the stringency of the override provision. Similar relationships, however, are not found to exist for total budget expenditures.     

The Line-Item Veto in Government Budgeting

Beginning in January 1997, the president will have the power to veto line-items in appropriations bills This article examines four paragraphs about the line-item veto from Jesse Burkhead's Government Budgeting . Eight themes from Burkhead's writing are identified and compared to practice by the states.     

Congressional voting on Superfund: Self-interest or ideology?

Many allege that Superfund is a pork-barrel program that serves self-interested federal legislators. An earlier empirical study found that Superfund cleanup priorities and expenditures were not dictated by congressional committee influence, but rather largely by public interest concerns. Despite this apparent denial of classic distributive politics, it is important to recognize that pork also can arise from legislators voting to expand programs when their constituents stand to benefit disproportionately. This study examines important House and Senate votes on Superfund for their correspondence to theories of congressional self-interest and ideology. On the whole, and despite its theoretical appeal as a potentially-classic pork-barrel program, congressional voting on Superfund is found to represent legislator's environmental and liberal ideologies as much as (if not more than) narrowly-defined self-interest. Along with the results of a previous study, this should be taken as evidence that Superfund has not consistently been a typical pork-barrel program, and that its rapid expansion and legislative support must be explained by other factors, including its symbolic environmental appeal.This research was funded in part by a Faculty Research Grant from the Graduate School of the University of Massachusetts at Amherst.     

Congressional committees and the political economy of federal outlays

The literature on the organization of the United States Congress has been dominated by “distributive” and “informational” theory. One important source of disagreement between these two theories is their characterization of whether individual legislators can engage in pork-barrel activities. Here we provide evidence which indicates that the pork-barrel is alive and well in the contemporary United States Congress. We focus on whether members of power and constituency committees can direct disproportionate federal expenditures to their districts. Finding strong and systematic evidence of pork-barrel activities by committee members provides empirical support for distributive theories of legislative organization.     

Budget institutions and taxation

While a number of different studies have explored the effects of budgetary procedures and the centralization of the budget process on government debt, deficits and spending, few of them have explored whether such fiscal institutions matter for public revenue. This article argues that centralizing the budget process raises the levels of taxation by limiting the ability of individual government officials to veto tax increases in line with common-pool-problem arguments regarding public finances. Using detailed data on budgetary procedures from 15 EU countries, the empirical analysis shows that greater centralization of the budget process increases taxation as a share of GDP and that both the type of budget centralization and level of government fractionalization matter for the size of this effect. The results suggest that further centralizing the budget process limits government debt and deficits by increasing public revenues as well as constraining public spending.     

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.     

Executive budget proposal,executive veto,legislative override,and uncertainty: A comparative analysis of the budgetary process

This study examines the roles of the executive budgetary proposal, the executive veto, the legislative override, and legislative uncertainty about the executive's preferences in determining the outcome of a budgetary process. A sequential model of the budgetary process with three institutional agents — a legislature, an appropriations committee, and an executive — is presented. To focus attention on the executive proposal, the veto, the override provision, and uncertainty, simplifying assumptions are made: (1) the appropriations committee has monopoly agenda power, and (2) there is a closed amendment control rule. In order to characterize sequential equilibria of various combinations of veto rules and override provisions, we examine a particular arrangement of agents' preferences and a two item budget. The results demonstrate that the final budget depends critically on the executive proposal, the executive veto rule, the override provision, and the uncertainty. We achieve three striking results. First, the executive proposal may be effective in reducing the frequency of the exercised veto. Second, for a given override provision, a movement from the item veto to the item reduction veto leaves the executive worse off in some cases. Third, with the same change in institutions, the government budget may increase.     

Budgetary Devices for Curbing Spending Prone Ministers and Bureaucrats

In this paper I study asimple game of the budgetary process. Thegame has three players. A spending proneminister, who proposes a budget, a primeminister, who accepts or vetoes, and abureaucrat who provides non-verifiableinformation about policy. The bureaucratis appointed by the spending minister. Ishow that in this setting public spendingis excessive. This result stems from theproposal power of the minister, and hisincentive to appoint a spending pronebureaucrat. Next, I examine two devices forcontrolling public spending: binding budgettargets imposed by the prime minister, anddelegating veto power to a spending aversefinance minister. It is shown that thelatter device is more effective than theformer device to curb a spending proneminister, because it not only reduces theproposal power of the spending minister,but also induces him to appoint lessspending prone bureaucrats.     

Budget Deficits in the States: New York

New York faces large projected budget shortfalls. Although the recession has contributed, a large part of the shortfalls are due to long standing structural imbalances. The structural imbalances result from high spending levels, particularly on Medicaid and education, a volatile revenue structure, and political forces that make it difficult to achieve recurring spending reductions. In the most recent budget session, federal stimulus money allowed legislators to avoid the tough decisions needed to move the state toward long-run fiscal balance, and the adoption of increased income tax rates for high earners is likely to increase revenue volatility moving forward.     

Do fiscal rules dampen the political business cycle?

This paper develops and tests the theory that fiscal rules limit politicians' ability to manipulate the budget for electoral gain. Using panel data from the American states, I find evidence suggesting that stringent balanced budget rules dampen the political business cycle. That is, while spending rises before and falls after elections in states that can carry deficits into the next fiscal year, this pattern does not exist in states with strict “no-carry” rules. Neither binding gubernatorial term limits nor the partisan composition of government appear to significantly affect the magnitude of the political business cycle.     

A theoretical analysis of the case for a balanced budget amendment

A balanced federal budget is not a best outcome for all situations, and a constitutional amendment to require annually balanced budgets is not well defended on grounds that it is. However, the case for a balanced budget amendment may have some merit on other, subtler grounds. This article outlines a set of such grounds.Specifically, if it can be shown that the political process systematically undervalues a desirable relationship between revenues and expenditures, a balanced budget requirement might be defensible. The grounds would be that annually balanced budgets are a second best solution, given an argument that the unconstrained political process produces even less desirable outcomes. However, existing knowledge does not make an adequate case that such a rule is needed.I would like to acknowledge the support of National Science Foundation Grant #SES-8218421, and the comments of the following persons on an earlier version: Arthur Benavie, J. Budziszewski, Henry Chappell, Richard Froyen, Paul (Kress, Peter Lange, Jeffrey Obler, Donald Searing, Kenneth Shepsle and the late Clement Vose. Of course, none of the above bears any responsibility for the content.