The Effects of Fiscal Rules Based on Revenue Structure: Evidence from U.S State Governments

Soyoung Park () and Sungchan Kim ()
Additional contact information
Soyoung Park: Incheon National University
Sungchan Kim: Catholic University of Korea

Economia Politica: Journal of Analytical and Institutional Economics, 2022, vol. 39, issue 3, No 3, 763-781

Abstract: Abstract Subnational governments in the United States have explicit fiscal rules, such as tax and expenditure limitations (TELs). However, those governments have different requirements in terms of the stringency of the rules based on institutional conditions. Previous studies have exclusively examined the effectiveness of fiscal rules on fiscal condition, but not on the internal structures of government, including revenue structures. The impact of fiscal rules depends on a government’s revenue conditions, as well as the stringency of enforcement. Thus, this research will investigate revenue structures using revenue diversification, revenue elasticity, and revenue dependency. Employing a panel data set of U.S. state governments from 1997 to 2016, this study examines the influence of fiscal rules using TELs on deficit shocks and expenditure volatility. According to the results, this research suggests that fiscal rules can amplify deficit shocks while stabilizing state government expenditures, depending on the stringency of fiscal rules and the revenue structure. Overall, the results suggest that states with the strictest rules have less discretion in adjusting fiscal policy depending on business cycles. Even though strict rules also need more time to take effect in stabilizing volatility, states with the stricter fiscal rules should consider less diversified revenue or a less elastic revenue structure to stabilize their budgets.

Keywords: Tax and expenditure limitations (TELs); Fiscal rules; Fiscal performance; Revenue structure (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s40888-022-00274-8 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:epolit:v:39:y:2022:i:3:d:10.1007_s40888-022-00274-8

Ordering information: This journal article can be ordered from
http://www.springer.com/economics/journal/40888

DOI: 10.1007/s40888-022-00274-8

Access Statistics for this article

Economia Politica: Journal of Analytical and Institutional Economics is currently edited by Alberto Quadrio Curzio

More articles in Economia Politica: Journal of Analytical and Institutional Economics from Springer, Fondazione Edison
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().