The disciplinary effect of taxpayer balloting on public spending: some empirical evidence

This study examines the relationship between taxpayer balloting and school spending in New Jersey school districts over a ten-year period from 2003 to 2012. We use a unique dataset of defeated and approved school district budgets in New Jersey to gauge citizens’ ability to serve as a monitoring mechanism over public school spending. Fixed-effects panel analysis is used to examine how the results of the taxpayer ballots affected relative spending levels in school districts. We find a negative relation between the prior year’s balloting outcome and the current year’s relative costs, indicating that districts whose budget referenda were defeated the prior year tended to adjust spending downwards. In subsequent analysis, we examine the relation between changes in school district costs and sequential year-to-year voting outcomes. We find that both a defeated budget in the prior year followed by an approved budget and two consecutive defeated budgets were associated with lower spending, providing additional evidence of a “lagged effect” on spending from a defeated budget. Our results support the inference that taxpayer balloting can impose discipline on public spending by making public officials ultimately responsive to taxpayer preferences. Thus, taxpayer balloting appears to serve its intended purpose, despite its apparent unpopularity in some education circles.