Magazine article Regulation

Fiscal Rules

Magazine article Regulation

Fiscal Rules

Article excerpt

"Can Fiscal Rules Constrain the Size of Government? An Analysis of the 'Crown Jewel' of Tax and Expenditure Limitations," by Paul Eliason and Byron Lutz. Federal Reserve working paper, February 2016.

In the battle to rein in government spending, the Colorado Taxpayer Bill of Rights (TABOR) seemed to be a rare panacea. The rule, passed in the early 1990s, limited the state government's spending growth to the combined rate of inflation and population growth. If revenue increased beyond that rate--which could occur, for instance, if economic growth were to concomitantly boost incomes and tax revenue--then the surplus funds would be returned to taxpayers. The state's apparently salutary budget health in the early 2000s was attributed to TABOR, and then-governor Bill Owens briefly became the poster child for the libertarian small-government crowd.

However, a closer look at Colorado's budget since TABOR's passage reveals that it has not caused the state to behave any differently than similar states, according to a new working paper by Paul Eliason of Duke University and Byron Lutz of the Federal Reserve Board. Instead, the salutary view of TABOR stumbles on two serious problems.

The first is that Colorado can suspend TABOR temporarily.

The state has done this several times, especially in the last decade. It remains a truism that it's impossible for legislation to tie the hands of future lawmakers.

The second problem is that it is unclear what is the counterfactual--that is, what would Colorado have done if there were no TABOR? …

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