Party Affiliation and Public Spending: Evidence from U.S. Governors

By Beland, Louis-Philippe; Oloomi, Sara | Economic Inquiry, April 2017 | Go to article overview

Party Affiliation and Public Spending: Evidence from U.S. Governors


Beland, Louis-Philippe, Oloomi, Sara, Economic Inquiry


I. INTRODUCTION

Some major cuts to state education and health budgets have been widely discussed in the news. For example, in 2011, Pennsylvania's Republican governor proposed slashing the state's higher education funding by hundreds of millions of dollars. In 2015, Illinois' Republican governor decided to cut $300 million from the health care system. Louisiana's Republican governor's 2015 budget plan proposed offsetting a $1.6 billion funding shortfall largely through budget cuts to education. These cuts are generally associated with Republican governors. It is commonly believed that Democrats are more likely than Republicans to support social policies, increase government involvement, and spend a higher share of their budget on key sectors such as education and health.

Despite the above anecdotal evidence, the literature is ambiguous as to whether party affiliation of governors (Democratic vs. Republican) matters regarding allocation of public expenditures. Inconsistent results regarding the impact of party affiliation on budgetary decisions are often due to a failure to address endogeneity concerns or small sample of years, which yields imprecise estimates. In this paper, we use a Regression Discontinuity Design (RDD) to investigate the causal impact of the party affiliation of governors on distributive budgetary decisions over key sectors (education, health/hospitals, public safety, social welfare and we combine the other sectors). We match gubernatorial election data with state government finance data from the U.S. Census Bureau for 1960-2012.

Our results support the existence of gubernatorial partisan differences over budgetary decisions. We find that under Democratic governors, the share of spending on education, health/hospitals, and public safety sectors is, respectively 2.4, 4.9 and 3.8% higher and there is a decrease in the other sectors (-2.3%). Other sectors are combined as follow: highway, natural resources, parks and recreation, interest on general debt, and governmental administration. We find no significant impact of political party of governors on total spending, only on the allocation of funds. This is important because the literature documents benefits to higher funding to education and health (e.g., Barro 1991; Cellini, Ferreira, and Rothstein 2010; Gupta, Verhoeven, and Tiongson 2002; Martin et al. 2012). Results are robust to different RD specifications, controls, and robustness checks.

The rest of the paper is organized as follows: Section II discusses the role of governors and reviews the literature; Section III presents the methodology; Section IV discusses the data and descriptive analysis; Section V presents the main results, heterogeneity, and sensitivity analysis; and Section VI concludes.

II. ROLE OF GOVERNORS AND RELATED LITERATURE

A. Role of Governors

Governors have a high degree of autonomy in the administration of their state. As head of the executive branch the governor prepares and administers the budget, sets policies, recommends legislation, signs laws, and appoints department heads. Governors can veto bills, which gives them considerable control over policies. In all but seven states, governors have the power to use a line-item veto on appropriations bills; this gives the governor the authority to reject part of a bill passed by the legislature that involves taxing or spending. In some states, the governor has additional roles, such as commander-in-chief of the National Guard, and has partial or absolute power to commute or pardon criminal sentences.

B. Related Literature

Our paper contributes to a growing literature on the impact of partisan allegiance (Democratic vs. Republican) on economic outcomes at the state level. Besley and Case (1995) find a positive and significant impact of Democratic lame duck governors on income taxes, workers' compensation benefits and spending during 1950-1986. (1) In another study, they show that the unified effect of a Democratic governor and Democrats controlling both the upper and lower houses of the legislature has a positive impact on total taxes, income taxes, total spending, and family assistance (Besley and Case 2003). …

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