Jm. Poterba, STATE RESPONSES TO FISCAL CRISES - THE EFFECTS OF BUDGETARY INSTITUTIONS AND POLITICS, Journal of political economy, 102(4), 1994, pp. 799-821
This paper explores the dynamics of state taxes and spending during th
e late 1980s, when regional economic downturns and increased expenditu
re demands led to substantial state budget deficits. More restrictive
state fiscal institutions, such as ''no-deficit-carryover'' rules and
tax and expenditure limitations, are correlated with more rapid fiscal
adjustment to unexpected deficits. Political factors are also importa
nt. When a single party controls the state house and the governorship,
deficit adjustment is much faster than when party control is divided.
In gubernatorial election years, tax increases and spending cuts are
both significantly smaller than at other times.