A Dynamic Scoring Simulation Analysis of How TEL Design Choices Impact Government Expansion

John D. Merrifield () and Barry W. Poulson ()
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John D. Merrifield: University of Texas at San Antonio College of Business.
Barry W. Poulson: University of Colorado at Boulder

Journal of Economic and Financial Studies (JEFS), 2016, vol. 4, issue 2, 60-68

Abstract: A dynamic scoring simulation analysis compares the size-of-government effects of four state-government-level Tax and Expenditure Limit (TEL) and Budget Stabilization Fund (BSF) combinations. Two of the four TEL-BSF combinations have population-plus-inflation as the basis for the spending growth limit. The other two TEL-BSF combinations have personal-income-growth as the basis for the spending growth cap. A sensitivity analysis, including a regression analysis of Monte-Carlo-generated ‘observations’, measures the significance of the model parameter choices. The personal-income-growth TELs don’t constrain spending growth at all in some states. In most states, a TEL based on a significant multiple of population plus inflation restrains fiscal expansion more than either version of our personal income growth TEL. The findings provide some important policy issues: there are significant differences in the fiscal and economic impacts of likely TEL design alternatives, and there is a likely trade-off between stringency and political durability.

Keywords: Budget stabilization; Fiscal consolidation; Fiscal rules; State fiscal policy. TEL. (search for similar items in EconPapers)
JEL-codes: H72 (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:lrc:lareco:v:4:y:2016:i:2:p:60-68

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