Balanced Budget Rules and Public Deficits: Evidence from the U.S. States / Henning Bohn, Robert P. Inman.

Format:

Book

Author/Creator:

Bohn, Henning.

Contributor:

National Bureau of Economic Research.

Inman, Robert P.

Series:

Working Paper Series (National Bureau of Economic Research) no. w5533.

NBER working paper series no. w5533

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Balanced Budget Rules and Public Deficits

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1996.

Summary:

Most states (Vermont is the exception) have a constitutional or statutory limitation restricting their ability to run deficits in the state's general fund. Balanced budget limitations may be either prospective or beginning-of-the-year requirements or retrospective or end-of-the-year requirements. Using budget data from a panel of 47 U.S. states for the period 1970-1991, the analysis finds that states with end-of-the-year (not prospective) balance requirements enforced as constitutional (not statutory) constraints by an independently elected (not politically appointed) state supreme court do have significant positive effects on a state's general fund surplus. The surplus is accumulated through cuts in spending, not through tax increases. It is saved in a state `rainy day' fund in anticipation of future general fund deficits. In contrast, prospective requirements, statutory end-of-the-year requirements, or constitutional end-of-the- year requirements enforced by a politically appointed court do not significantly constrain general fund deficit behavior. Finally, we find little evidence that the constraints `force' deficits into other fiscal accounts.

Notes:

Print version record

April 1996.