Election periods and state tax policy cycles

The policy and political outcomes that can be fruitfully studied using the electoral period as an analytic foundation range broadly. The present research has shown that much of the pattern of state tax policy change can be traced directly to that source. It suggests strongly that state parties are concerned with gaining and retaining political power and that the severity of public reaction declines with the passage of time. The outcome is a distinct rate change cycle with the broad based taxes. Beyond the apparent conclusion that tax reform efforts should be directed toward the first year of a gubernatorial term, there are some additional implications relating to other questions. First, the findings may help explain the relationship reported independently by Oates (1975, p. 150) and Goetz (1977, p. 184) that state governments with more income-elastic tax structures increase expenditure per capita by greater amount than those with less elastic structures. Politically, state governments find it rational to increase statutory rates of major taxes at two points in the election cycle (Y l-3 and Y l-1 ). A more elastic tax structure can provide greater funding between these politically attractive tax points. Another implication of the analysis is that the pattern of state tax policy changes may be economically destabilizing. The study clearly demonstrates the higher frequency of activity in the Y l-;3 and Y l-1 years. At the same time, a large number of states are on a 1974–1978 election cycle. Certain years are thus particularly likely to show major state tax increases, for certain reasons that have nothing to do with national aggregate demand policy. Fiscal policy, thus, must be prepared to counteract this potentially destabilizing force external to normal federal control. A final implication relates directly to state budgets. Some years are more likely to show new funds available for public programs because of the tax policy-electoral period cycle. These years will be substantially more attractive for budget expansion than would be others. Agencies subjected to zero base review in those years or proposing major new expenditure initiatives then may be expected to fare better than in other years. Copyright Martinus Nijhoff Publishers b.v 1978