Monday, July 18, 2011

Partisanship and state fiscal policy

From National Center for Policy Analysis:

Since the Great Depression, the size of U.S. government has grown consistently. While most focus is traditionally on the expansion of the federal government, the states have played a significant role in this transformation, say Noel D. Johnson, an assistant professor of economics at George Mason University, Matthew Mitchell, a research fellow at the Mercatus Center, and Steven Yamarik, a professor of economics at California State University, Long Beach.

* The size of state and local consumption as a proportion of total government spending increased from 43 percent to 67 percent between 1960 and 2010.

* As a proportion of gross domestic product (GDP), it grew from 9 to 12 percent.

* Much of the growth in the states concerns local public goods such as education, law and order, social transfers (welfare programs), and health expenditures.

There are significant differences in policy preferences between Republicans and Democrats concerning these budget items -- of which both voters and politicians are highly conscious. In general, the consensus view is that Republicans favor smaller government, while Democrats are viewed as favoring a larger role for government, raising the question: what role does partisanship play in U.S. state fiscal policymaking?

* In the presence of a fiscal constraint that binds the parties to some spending position that is between their most-preferred spending levels, Democrats will adopt platforms that call for more regulation while Republicans will adopt platforms that call for less regulation.

* Republicans do generally support budgets that decrease the size of government, whereas Democrats favor higher taxes and spending.

* Furthermore, to the extent that unified Republican governments seem to be elected in states with higher spending and taxes and vice versa for Democrats, it seems that voters expect the parties to purse these policies.

* Politicians in states that prevent them from pursuing votes through partisan fiscal policies will instead substitute into regulatory efforts.

* Democrats tend to favor further increases in the minimum wage and are less likely to outlaw a closed union shop by adopting a right-to-work statute.

* Republicans, on the other hand, are even more likely to adopt a right-to-work statute in the presence of a fiscal constraint.

Source: Noel D. Johnson, Matthew Mitchell and Steven Yamarik, "Pick Your Poison: Do Politicians Regulate When They Can't," Mercatus Center, June 2011.

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