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- Title
The limits of tax and expenditure limits: TEL implementation as a principal-agent problem.
- Authors
Seljan, Ellen
- Abstract
Previous scholarship has shown that Tax and Expenditure Limits (TELs) often fail to constrain government growth. This paper views the implementation of TELs as a principal-agent problem. Agency theory predicts that delegation is affected by the preferences of agents and the costs of monitoring those agents. Using panel data for the US states from 1970 through 2008, I conduct an empirical test of the validity of the principal-agent model for TELs. I find that state spending limitations are only effective at cutting the growth of state and local spending under the direction of agents who have a preference for limited government. Additionally, state property tax limitations are only effective when monitoring does not require costly coordinated action. These findings contradict an alternative theory of TEL implementation that looks towards the policy's origin. My research suggests that the arrangements of delegation determine when and under what conditions TELs effectively reduce government growth.
- Subjects
TAX &; expenditure limitations; DELEGATION of authority; U.S. states; U.S. states politics &; government; PROPERTY tax laws; FISCAL policy; POLICY science research; ECONOMIC policy
- Publication
Public Choice, 2014, Vol 159, Issue 3/4, p485
- ISSN
0048-5829
- Publication type
Article
- DOI
10.1007/s11127-013-0063-0