The effects of tax and expenditure limit on state discretionary tax adjustment Available to Purchase

Unanticipated economic fluctuations exert pressure on state governments to conduct discretionary tax adjustments to balance the budget. Even though states adjust fiscal policy as the economy fluctuates, the typical cyclical economic factors are not the sole determinant of such adjustments. State government budgeting systems in the United States operate under a variety of fiscal constraints. The tax and expenditure limit (TEL) is a prominent fiscal constraint in state governments. Using a panel dataset covering 47 continental state governments from FY 1988 to FY 2006, this paper examines the impact of TELs on state discretionary tax adjustments. Results from this analysis shows that states with stringent TELs tend to conduct fewer tax cuts when facing potential deficits.