Author:Dove, John A.

    Tax and expenditure limits (TELs) have become a centerpiece and mainstay of state and local fiscal constraints, especially as more recently envisioned and created. Largely driven by the tax revolts and Proposition 13 passed by the state of California in the 1970s, these fiscal constraints have become much more prevalent, with 28 states faced with some form of a TEL (Rueben and Randall 2017), along with 41 states imposing similar constraints on their respective local jurisdictional units (Mengedoth and Pinto 2015). This has led to a significant body of literature that details how these TELs impact various aspects of economic and public-sector activity (Abrams and Dougan 1986; Lowery 1983; Joyce and Mullins 1991; Mullins and Joyce 1996; Cabases et al. 2007; Epple and Spatt 1986; Farnham 1985). (2)

    An important byproduct of these constraints, to be discussed in greater detail below, are the potential secondary effects and unintended consequences that these limits may create. This is especially true as both state and local governments faced with such constraints attempt to circumvent their intent through several different avenues. This may come in the form of increasing off-budget expenditures (Bennett and DiLorenzo 1982), adopting alternative revenue sources not bound by the limit (Sun 2014; Wang 2018), through the creation of special assessment districts (Bowler and Donovan 2004; Carr 2006; Carr and Farmer 2011; Goodman and Leeland 2019), or through some other means.

    This current study adds specifically to this latter stream of the literature by evaluating an additional avenue through which state and local governments may circumvent these constraints once faced with them; the effect that such TELs have on state and local lobbying expenditures. Importantly, expenditures of this type have increased significantly over the past several decades. To that, these expenditures have risen by roughly 50% between 1998 and 2017 while the total number of state and local governments involved in federal lobbying has grown by roughly 86% over the same period (Center for Responsive Politics). (3)

    Further, since 1980 state and local lobbying efforts have increased over 420% and now makes up over 12% of all organized lobbying expenditures at the federal level (Schlozman et al. 2015; Goldstein and You 2017). Interestingly, little research exists to explain this phenomenon. Therefore, this paper provides several important contributions. First, it is suggestive of another potential channel through which state and local governments circumvent constitutionally or legislatively imposed TELs. Second, it provides at least a partial explanation for the increased lobbying efforts observed by these jurisdictional units, as it roughly corresponds with increased efforts to constrain state and local taxation and spending observed through the 1970s and 1980s. Finally, it provides several opportunities for future research.

    Importantly, revenue constrained jurisdictions might find it beneficial to increase such lobbying efforts to circumvent these various limits on taxing behavior. Research indicates that local governments especially have become much more dependent upon nontax revenue sources when faced with a property tax limit (McCubbins and Moule 2010; Shadbegian 1999; Skidmore 1999; Kioko and Martell 2012). Further, to the extent that such efforts prove successful and are considered off-budget (and thus not subject to an expenditure limit), this would allow such a jurisdiction to increase its expenditures beyond the explicit intent of any expenditure limit in effect. On the flip side, it is quite possible that such constrained jurisdictions, rather than expending even more scarce resources to these endeavors may instead reduce total lobbying expenditures. This presents an important empirical question.

    In order to evaluate this potential, I employ several different TEL measures using both indicator variables and an index variable created by Amiel et al. (2009). These measures are also broken down by the type of limit imposed (whether a tax limit or expenditure limit), and the intensity and relative stringency of the limit (as measured through the index variable). Additionally, I include a dataset of federal lobbying expenditures by state and local governments which comes from the Center for Responsive Politics and supplemented with additional data drawn from Goldstein and You (2017). Combined, these data run from 1999 through 2012 for local governments and 1999 through 2015 for state governments. The dataset for local lobbying expenditures is specifically drawn from a large sample of local governmental units with a population of 25,000 or greater. Anticipating the results stricter TELs imposed on local governments are strongly associated with increased lobbying expenditures and efforts, which appears to be driven by the existence of a property tax limit in particular. At the state level, while a stricter TEL is associated with increased lobbying expenditures, the result is not robust, though an explicit expenditure limit is associated with increased lobbying.

    The remainder of the paper is structured as follows: section 2 details the relevant literature regarding TELs and theoretical considerations for why state and local governments lobby the federal government. Section 3 discusses the data and empirical specifications employed. Section 4 presents the results, while section 5 concludes.


    A large body of literature evaluates the extent to which tax and expenditure limits affect fiscal outcomes and other major factors across several jurisdictions. Early research on state and local TELs in particular typically showed mixed results at best in relation to how effective they were in achieving their stated goals (Abrams and Dougan 1986; Lowery 1983; Joyce and Mullins 1991; Mullins and Joyce 1996; Cabases et al. 2007; Epple and Spatt 1986; Farnham 1985). However more recent research, incorporating panel data and accounting for possible endogeneity, indicates that TELs can be at least somewhat effective at accomplishing their stated goals in certain settings (Bails and Tieslau 2000; Shadbegian 1996; New 2010; Bae and Gais 2007).

    Additional and even more recent work examines how exactly and whether TELs limit the growth of government. For example, Seljan (2014) applies a principle-agent framework and theoretically finds that the effectiveness of a TEL at limiting such growth is dependent upon whether those constraints are overseen by limited-government preferring agents. Further, Kousser et al. (2008) do not find any systematic evidence that a particular type of TEL is effective at limiting the growth of government, while Amiel et al. (2014) indicate that the restrictiveness of a TEL is an important indicator of its ability to constrain.

    Another piece of the literature as relates to this current study is the body of work that has been devoted to the secondary effects and unintended consequences associated with the implementation of TELs. For instance, a significant amount of research suggests that tax limits tend to increase bond ratings and borrowing costs, while expenditure limits tend to lower those same costs for both state and local governments (Bayoumi et al. 1995; Eichengreen 1992; Johnson and Kriz 2005; Lowry 2001; Poterba and Rueben 1999; Dove 2016). Deller et al. (2013) evaluate how TELs imposed at the state level influence overall state debt. Their research indicates that relatively more restrictive TELs result in increased debt burdens if they restrict either expenditures or revenues. Evidence also suggests that TELs increase the likelihood of municipal default (Dove 2014, 2019).

    Additional research suggests that another unintended effect that TELs can have is to force state and local governments to simply shift revenue sources and to shift spending toward off-budget expenditures (Bennett and DiLorenzo 1982). Specifically, Sun (2014) shows that property taxes do tend to be lower in the face of a TEL, though the lost revenue tends to result in increased user fees along with sales and income taxes. Wang (2018) adds to this debate by building a unique TEL index and suggests that sales taxes and user fees do tend to be relatively larger in cities faced with a TEL. Additionally, Stallmann (2007) finds that local governments also tend to create and rely more heavily on special assessment districts.

    Further, Mullins (2004) notes that educational funding is significantly affected by the presence of a TEL, which appears to both negatively and disproportionately impact relatively low-income districts. Maher et al. (2016) consider a cross-section of municipal governments and evaluate how TELs and other institutional features affected funding ratios for both municipal pensions and other post-employment benefits (OPEB) through the Great Recession. While differences in pension funding was not associated with the restrictiveness of TELs, OPEB funding was negatively associated with the existence of a municipal TEL.

    Additionally, Brooks and Phillips (2010) and Revelli (2013) evaluate how municipal TELs impact local grant expenditures obtained from central governments. This flypaper effect was found to be much stronger when municipal governments were faced with specific tax and expenditure limits. Finally, Kioko and Martell (2012) indicate that local property tax limits do not increase the extent of state aid to locally constrained governments. However, Park et al. (2018) do indicate that during times of fiscal stress (in particular the Great Recession), relatively more restrictive TELs resulted in those municipal governments so constrained receiving more intergovernmental aid. The evidence related to these unintended consequences relates specifically to the current question at hand: while grants-in-aid to junior jurisdictions are not constrained by TELs, and thus...

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