Effects of Term Limits on Fiscal Performance: Evidence from Democratic Nations

Political reputation models featureforward-looking, rational voters whore-elect incumbents based on their estimateof an incumbent's ability level. Fiscalpolicy is one of the ways an incumbentestablishes a reputation and therebysignals this ability level to voters. Thereputation-building framework implies thatterm limits should affect fiscalperformance; a term-limited incumbentplaces less value on reputation-buildingthan an incumbent eligible for re-electiondoes. We examine differences in fiscalperformance in democratic countries underalternative executive term limit regimes. Our results generally agree with the priorfindings of Besley and Case (1995a) whoanalyzed gubernatorial term limits in theAmerican States. We provide new evidencethat the fiscal effects of term limitsdiffer under a two-term rule versus asingle-term rule.