The Impact of Fiscal Limits on State Revenue Volatility

Source: Tucker Staley, American Review of Public Administration, Vol 47, Issue 4, May 2017
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From the abstract:
Recent headlines suggest that state revenue volatility has important consequences regarding public administration and the choices state governments make. This work explores the connection between fiscal limits—specifically, tax and expenditure limitations (TELs), balanced-budget rules (BBRs), and super-majority voting requirements (SMRs)—and state revenue volatility. While growth is the most common measure for judging the impact of fiscal constraints, there is a growing literature that argues that volatility, or risk, of state revenue streams is equally important. This work looks at 48 states (Alaska and Nebraska are dropped) over a 37-year period (1969-2005) to assess how fiscal constraints are associated with the volatility of state revenue streams. The evidence suggests that states with strict BBRs and SMRs tend to have lower levels of revenue volatility, while strict TELs tend to be associated with higher levels of revenue volatility. However, given that states often have adopted more than one of these limits, the evidence suggests that strong BBRs have a very strong moderating effect on the impact of TELs. States with super-majority rules tend to start at lower levels of volatility; however, they have little influence on the impact of the other limits.