Institutions and State Spending: An Overview

Abstract

U.S. fiscal policy at the federal, state, and local level is on an unsustainable path. Although reformers look for ways to reduce spending on particular budget items, tomorrow’s legislatures may easily reverse these cuts. In contrast, a change in the rules that govern the political process — the “institutions” that shape a budget — can have a lasting effect on spending for years to come. Codified in statutes and in constitutions,these institutions include the rules of budgeting, electioneering, and legislating. They influence the decisions of legislators, governors, presidents, bureaucrats, voters, and even lobbyists. Institutional reform can be a more effective and sustainable path to fiscal probity than a one-time budget cut. In this article, we summarize the empirical investigations of more than a dozen state-level institutions. The lesson for both state and federal policymakers is that a number of institutional reforms are more likely to put spending on a more sustainable path.

Keywords: Fiscal Policy, Budget, Spending, State, Statutes, Constitutions

JEL Classification: H72