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Budgetary Separation of Powers in the American States and the Tax Level: A Regression Discontinuity Analysis

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  • Lucas Ferrero
  • Leandro M. de Magalhaes

Abstract

A political regime has budgetary separation of powers if the power with the prerogative to raise taxes is not the full residual claimant of a tax increase. In the American states two conditions are needed: the governor must have the line item veto, and the political interests of the legislative majority and the governor must not be perfectly aligned. Political alignment between the executive and the legislative depends on the numbers of seats the governor's party controls in the state legislature; it changes discontinuously as we move from a unifed to a divided government. We use regression discontinuity design to establish a causal relation between a divided government and lower tax rates in states with line item veto. In states with block veto such relation is not present. We estimate the jump in the tax level at the discontinuity semiparametrically.

Suggested Citation

  • Lucas Ferrero & Leandro M. de Magalhaes, 2008. "Budgetary Separation of Powers in the American States and the Tax Level: A Regression Discontinuity Analysis," Bristol Economics Discussion Papers 08/603, School of Economics, University of Bristol, UK.
    • Handle: RePEc:bri:uobdis:08/603
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    References listed on IDEAS

    as
    1. Timothy Besley & Anne Case, 2003. "Political Institutions and Policy Choices: Evidence from the United States," Journal of Economic Literature, American Economic Association, vol. 41(1), pages 7-73, March.
    2. Alt, James E. & Lowry, Robert C., 1994. "Divided Government, Fiscal Institutions, and Budget Deficits: Evidence from the States," American Political Science Review, Cambridge University Press, vol. 88(4), pages 811-828, December.
    3. Arellano, Manuel, 2003. "Panel Data Econometrics," OUP Catalogue, Oxford University Press, number 9780199245291.
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    More about this item

    Keywords

    Separation of powers; line item veto; tax level; regression discontinuity; semiparametric.;
    All these keywords.

    JEL classification:

    • H00 - Public Economics - - General - - - General
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue

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