are preferences for fiscal discipline endogenous differences in voters fiscal preferencesare examined taking advantage of theexceptional swiss institutional setting empirical evidence suggests thatpreferences are determined by strictlycultural patterns cultural area measuredby language thus fiscal preferences canbe considered as being largely exogenous this implies that except for specialcases it is not possible to find simpleproxy variables for fiscal preferences anad hoc index of fiscal preferencesought to be built up when the introductionof this variable is required forcomprehensive explanatory models of fiscaldiscipline or for other related studies

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

line item veto where is thy sting roponents of giving the president the authority to use a line item veto argue that the institutional change is needed to limit special interest legislation and restrain spending opponents respond that it would grant too much added power to the president thereby upsetting the delicate balance wisely crafted by the founding fathers this article focuses on the presumption evidently shared by both sides in the debate that adoption of item veto authority will have significant consequences in terms of budget outcomes and the distribution of power 1 curiously there presently exists little empirical support for the presumption that item veto authority is important most studies comparing states with various types of veto authority have failed to detect significant effects associated with item veto additional tests of our own are consistent with these results after reviewing the empirical evidence we reconsider the alleged effects of item veto authority by seating the popular depiction in an explicit model of the budgetary process formal modeling exposes logical inconsistencies contained in popular veto discourse further the model makes clear that the predicted consequences of item veto commonly projected as ubiquitous in fact arise only in select settings

capital budgets borrowing rules and state capital spending abstract this paper compares the level and composition of government spending in u s states that maintain separate budgets for capital and operating expenditures with that in states that employ unified budgets it also investigates the effects of pay as you go financing rules for capital projects the empirical findings suggest that states with separate capital budgets spend more on public capital projects than comparable states with unified budgets there is no evidence that the presence or absence of a capital budget affects the level of non capital spending pay as you go requirements for financing capital projects are associated with lower levels of both capital and non capital spending

politics partisanship and the power to veto does gubernatorial line item veto power affect state budgets abstracthow does line item veto liv power affect a governor s ability to structure the state budget is liv power only relevant as a partisan tool is it still relevant when the state legislature can override the veto we use a rich disaggregated data set to test the effect of the gubernatorial liv on state budgets controlling for political factors such as party affiliation of the governor and legislature minority status of the governor and the legislature s ability to override a liv our results suggest that liv power has very weak influence if any on governors ability to influence state budgets

state responses to fiscal crises the effects of budgetary institutions and politics this paper explores the dynamics of state taxes and spending during the late 1980s when regional economic downturns and increased expenditure demands led to substantial state budget deficits more restrictive state fiscal institutions such as no deficit carryover rules and tax and expenditure limitations are correlated with more rapid fiscal adjustment to unexpected deficits political factors are also important when a single party controls the state house and the governorship deficit adjustment is much faster than when party control is divided in gubernatorial election years tax increases and spending cuts are both significantly smaller than at other times

how to succeed at increasing spending without really trying the balanced budget amendment and the item veto congressional efforts at budgetary reform generally contain procedural impediments designed to limit profligate spending in particular the line item veto and the balanced budget amendment are intended to limit the ability of legislators to pursue their constituents interests through pork barrel politics at the expense of the broader public interest however assuming that legislators remain motivated by local constituent interests we argue that these reforms will promote unexpected results the supermajorities requires by the line item veto and the balanced budget amendment include incentives for log rolling that promote and may indeed increase pork barrel spending

state government expenditure determinants and tax revenue determinants revisited the primary aim of the research was to test the general hypothesis that many institutional and political variables affect fiscal outcomes that the preferences of public officials and the decision processes used to act on those preferences matter state government data state only not state and local from 1980 1985 and 1990 were used to specify state tax revenue and expenditure models a previous merrifield 1991 state tax revenue model identified many significant institutional and political variables but it was based only on 1985 data 49 observations the larger data set 147 observations including better data for some of the variables indicated that most of merrifield s 1991 findings are robust the state expenditure models facilitated a second test of the general institutional and political variable hypothesis as well as the hypotheses about specific variables the expenditure model also facilitated comparisons of expenditure and tax determinants and comparisons with results published in the literature though there are some noteworthy differences between the expenditure and tax models the expenditure models also supported many of the institutional and political variable hypotheses

the ems and the dollar the ems and the dollar francesco giavazzi and alberto giovannini this paper examines the behaviour of exchange rates prior to and since the inception of the european monetary system ems movements in bilateral european exchange rates tend to be associated with fluctuations in the dollar in particular the mark tends to appreciate against other european currencies when the dollar depreciates further most realignments of currencies in the ems have generally occurred after sharp movements in the dollar conventional explanations relying on portfolio diversification by investors do not seem to explain the facts fully a more satisfactory explanation is provided by the existence of capital controls these limit the mobility of assets and ensure an asymmetric response by european currencies to movements in the dollar these capital controls are in the absence of coordinated monetary policy essential to the smooth working of the ems however at the same time they limit the scope for the further integration of european capital markets thus the ems is not a step on the road to greater financial integration indeed it is a cul de sac

the effect of the expansion of the voting franchise on the size of government this paper examines the claim that expansion of the voting franchise has been an important factor in the growth of government state government spending and state and local spending are explained using a panel of 46 states for 1950 88 elimination of poll taxes and literacy tests led to higher turnout particularly among the poor and a poorer pivotal voter as predicted we find that these changes a fall in the income of voters relative to state income and the ouster of republicans from state government led to a sharp rise in welfare spending but no change in other spending

the institutional and political factors which influence taxation the ability of politicians to concentrate the benefits of spending while dispersing the costs of taxation makes taxation attractive distributive politics but the degree to which it is attractive varies widely among the states the objective of the research was to develop a fully specified model of per capita tax revenues of state governments not state plus local and thereby identify the political and institutional factors which cause the attractiveness of taxation to vary the resulting model includes 17 significant explanatory variables which together account for all but 10 of the variation in per capita tax revenue thirteen of the significant variables are institutional or political factors thus providing decisionmakers specific options for influencing the future size of government

separation of powers and the tax level in the u s states we estimate a nonlinear and discontinuous relationship between the tax level and the degree of alignment between the legislature and the governor measured as the number of seats in the legislature that belong to the governor s party in the states with the line item veto the tax level jumps at the point where the government switches from divided to unified with a regression discontinuity design we show that this jump can be interpreted as a causal effect we propose a simple model to account for this nonlinear relationship the sequential nature of the budget bargaining game that is the legislature proposes and the governor cuts with the line item veto implies that the tax level is determined by the overlap between the supporters of the governor and the supporters of the legislative majority changes in the size of the overlap determine the tax level

the elusive costs and the immaterial gains of fiscal constraints we study whether fiscal restrictions affect volatilities and correlations of macrovariables and the probability of excessive debt for a sample of 48 us states fiscal constraints are characterized with a number of indicators and volatilities and correlations are computed in several ways the second moments of macroeconomic variables in states with different fiscal constraints are economically and statistically similar excessive debt and the mechanism linking budget deficit and excessive debts are independent of whether tight or loose fiscal constraints are in place creative budget accounting may account for the results

a nonlinear principal component analysis of the relationship between budget rules and fiscal performance in the european union tests of the relationship between budget rules and fiscal performance are metric sensitive and arbitrary in the evaluation of the stringency of the rules in the aggregation of these evaluations in an index and in the imposition of a linearly specified model we propose a nonlinear principal component analysis to solve these problems and evaluate the relative disciplinary power of each rule a battery of panel regressions on 1980 2003 optimally transformed data relative to 12 eu countries confirms that upon controlling for standard economic political and institutional variables more stringent rules reduce fiscal imbalances and budget size

resource windfalls and public debt a political economy perspective abstract can natural resource windfalls increase public debt in democracies adopting a political economy perspective we show that the answer is in the affirmative resource windfalls increase both the government s income and wealth the former mitigates the need to borrow whereas the latter encourages further borrowing as it improves its terms implying an ambiguous pure effect of resource windfalls on debt re election considerations shorten political time horizons and give rise to political myopia we show that higher political myopia induced by more stringent institutional re election restrictions magnifies the wealth effect turning positive the effect of resource windfalls on debt we test the model s predictions using a panel of u s states over the period 1963 2007 our identification strategy rests on constitutionally entrenched differences in gubernatorial term limits that provide plausibly exogenous variation in re election prospects and geographically based cross state differences in natural endowments our baseline estimates indicate that a resource windfall of 1 induces an increase of approximately 20 in the public debt of states with more stringent re election restrictions

sovereign risk premia the link between fiscal rules and stability culture abstract there is a growing empirical literature studying whether permanent constraints on fiscal policy such as fiscal rules reduce sovereign risk premia nevertheless it remains an open question whether these rules are effective genuinely or just because they mirror fiscal preferences of politicians and voters in our analysis of european bond spreads before the financial crisis we shed light on this issue by employing several types of stability preference related proxies these proxies refer to a country s past stability performance government characteristics and survey results related to general trust we find evidence that these preference indicators affect sovereign bond spreads and dampen the measurable impact of fiscal rules yet the interaction of stability preferences and rules points to a particular potential of fiscal rules to restore market confidence in countries with a historical lack of stability culture

democrats republicans and taxes evidence that political parties matter i estimate the influence of political parties on state tax burdens over a forty year period 1960 2000 holding constant a large number of state and voter characteristic variables i find that i tax burdens are higher when democrats control the state legislature compared to when republicans are in control ii the political party of the governor has little effect after controlling for partisan influences in the state legislature i explain how both findings are consistent with median voter theory my results suggest that after five years of democratic control of the legislature state government would be approximately 3 to 5 percent larger than if republicans controlled the legislature during that same period with the better specifications producing estimates in the higher end of this range

presidential pork executive veto power and distributive politics mitigated to the extent that the president prefers spending in some districts over others the model also generates new insights and predictions about fiscal policy under the separation of powers including the effects of divided government electoral rules and term limitations for the executive

the line item veto and public sector budgets evidence from the states abstract the paper examines the claim that gubernatorial line item veto power reduces state spending analysis of a rich set of state budget data indicates that long run budgets are not altered by an item veto and that in the short run the item veto s potency is contingent upon the political setting in certain circumstances governors with political incentives to use an item veto alter spending and revenues in a statistically significant and quantitatively important fashion these results suggest that state budgets have not been importantly altered as a result of the existence of the line item veto and shed doubt on the use of the line item veto to reduce federal government spending

technology adoption in the presence of network externalities we analyze technology adoption in industries where network externalities are significant the pattern of adoption depends on whether technologies are sponsored a sponsor is an entity that has property rights to the technology and hence is willing to make investments to promote it key findings include the following 1 compatibility tends to be undersupplied by the market but excessive standardization can occur 2 in the absence of sponsors the technology superior today has a strategic advantage and is likely to dominate the market 3 when one of two rival technologies is sponsored that technology has a strategic advantage and may be adopted even if it is inferior 4 when two competing technologies both are sponsored the technology that will be superior tomorrow has a strategic advantage

asset markets exchange rates and economic integration a synthesis preface part i introduction 1 an agenda part ii modeling an open economy 2 the structure of the model 3 solving the model 4 comparative statics goods market disturbances 5 comparative statics asset market and compound disturbance 6 dynamics under pegged and flexible exchange rates part iii extending the model 7 claims caveas and simplifications 8 on money income and insulation 9 expectations speculation and exchange rate stability 10 on the specification of fiscal policy part iv analyzing interdependence 11 a two country model 12 similarities and symmetries in goods and asset markets 13 comparative statics in the two country model part v the theory of financial integration 14 dimensions of integration 15 market integration interdependence and monetary policy under pegged exchange rates 16 the analytics of a monetary union 17 market integration interdependence and fiscal policy under pegged exchange rates 18 fiscal policy in a monetary union appendixes glossary index

vertical externalities in tax setting evidence from gasoline and cigarettes abstract a common feature of federal systems is that tax bases are joint property consequently state and federal tax setting decisions are interdependent our aim here is to put forward a rudimentary theoretical analysis of this phenomenon and to use the theory as a framework for econometrically estimating the magnitude of the responses we find that when the federal government increases taxes there is a significant positive response of state taxes for example a 10 cent per gallon increase in the federal tax rate on gasoline leads to a 3 2 cent increase in the state tax rate

first mover advantage and the speed of competitive entry 1887 1986 abstract this paper examines historical changes in the duration of the interval between the commercial introduction of a new product and the time when entry by later competitors begins a priori reasons are examined why the duration of this interval in the u s economy may either expand or contract data for 46 major product innovations however show a systematic tendency for the interval identified above to contract over the last century the average time span was almost 33 years at the turn of the century and has declined to 3 4 years for innovations in 1967 86 empirical evidence suggests this change resulted largely from a lowering of absolute cost advantages of first movers through easier transfer of knowledge and skills across firms and was also facilitated by the growth of markets

are asymmetric exchange controls effective in the 1970s a number of industrial countries made recourse to asymmetric exchange controls i e to administrative measures aimed at restraining outflows of domestic capital during the 1980s a process of liberalization was underway and the issue arose of its macroeconomic impact in this paper we analyze the macroeconomic effectiveness of asymmetric exchange controls with different hypotheses regarding three key aspects i the domestic policy mix ii the degree of substitutability between domestic and foreign assets iii the financial size of the economy the results are that the macroeconomic effectiveness of exchange controls is reduced at the limit to nothing i as the country concerned follows a strict monetary policy or a tax fiscal policy ii as domestic and foreign assets tend to be perfect substitutes iii as the domestic economy represents a small segment of an integrated financial market

interest groups and the size of government the results of the previous section estimates of a three equation model from 23 observations must obviously be regarded as tentative the consistent positive relationship between number of interest groups and size of government observed with changing sets of included independent variables changing samples of nations and treating the number of interest groups as either exogenous or codetermined does imply rather unequivocally that interest groups are able to influence public policies in such a manner as to lead to increased government size beyond helping to reinforce this conclusion the results of the previous section should be regarded as first steps in the development of a model of the polity that can explain participation in the political process by interest groups and citizens as well as the size of government

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

searching for leviathan an empirical study in several papers and a recent book geoffrey brennan and james buchanan 1977 1978 1980 have put forth a striking and controversial view of the public sector drawing by analogy on the conventional theory of monopoly in the private sector they envision a monolithic government that systematically seeks to exploit its citizenry through the maximization of the tax revenues that it extracts from the economy from this perspective they develop a fiscal constitution whose central purpose is to constrain leviathan by limiting in various ways its access to tax and other fiscal instruments while the leviathan hypothesis has been the source of lively debate and a wide range of policy proposals it has not been the subject of much systematic empirical work or testing this is a matter of some importance since the policy implications of the leviathan view are disturbing to put it mildly in particular brennan and buchanan virtually stand on their heads many of the basic theorems in public finance for an efficient and equitable tax system if in fact the leviathan view is an inaccurate depiction of the functioning of the public sector the introduction of their policy proposals is likely to make a sorry mess of the fiscal system the leviathan model does however have some straightforward implications for observable fiscal behavior it is the purpose of this paper to examine one of these testable implications brennan and buchanan stress that fiscal decentralization is itself a powerful constraint on leviathan competition among governments in the context of the interjurisdictional mobility of persons in pursuit of fiscal gains can offer partial or possibly complete substitutes for explicit fiscal constraints on the taxing power 1980 p 184 such competition among governments in a federal system that places heavy reliance on local fiscal decisions will greatly limit the capacity of leviathan to channel resources into the public sector in short as indicated by the epigraph to this paper the leviathan model implies that other things equal the size of the public sector should vary inversely with the extent of fiscal decentralization 2

economic and political determinants of fee income in norwegian local governments this paper presents an empirical analysis of the determinants of fee income in norweigan local governments the point of departure is a representative voter model emphasizing the effects of pure economic variables the benchmark model is extended by including two aspects of the political system ideology and strength it is evident that increased socialist influence increases the size of the local public sector while a strong political leadership has an advantage in opposing pressure to increase spending

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