Political Control and Public Sector Savings: Evidence from the States

The right to access (and ultimately spend)public sector savings is determined by the party which can control the politicaloutcome. This implies that anticipatedfuture changes in the state's controllingpolitical party may systematicallyadversely affect current savings. Extendingthe Life Cycle/Permanent Income model, Ishow that a representative legislator willopt to forgo current saving in favor ofspending when his prospects for futurepolitical control diminish. Estimating apanel data model of 39 states from1973–1995, I find that an actual futurechange in the controlling party of astate's lower house significantly reducescurrent saving.