2
Recent studies have found ample evidence to support the claim that fiscal
institutions can act as effective constraints on state fiscal policy. Balanced budget rules,
tax and expenditure limits, supermajority requirements for new tax legislation, and the
line-item veto are just a few of the budgetary rules and procedures that researchers have
found to be significant in empirical analyses of state fiscal policy (see for example Alt
and Lowry 1994; Crain 2003; Knight 2000; Poterba 1997, 1994; Shadbegian 1996).
However, this literature has yet to include legislative term limits among the set of fiscal
institutions examined. This paper argues that term limits, while not explicitly a fiscal
institution, have a similar ability to shape the fiscal behavior of state legislators. Using
data from 48 states from 1977 to 2001, this paper finds that states with term limits have
lower tax rates and higher expenditure levels than states without term limits. This paper
argues that term limits influence state fiscal policy by altering the legislative environment
in which policy is formulated. By diffusing power within the legislature and shortening
the time horizons of state legislators, term limits create an institutional environment in
which new tax legislation is harder to pass and spending more difficult to control.
Section 1. Term Limits in the U.S. States
Since 1990, 21 states have enacted some form of limitation on the number of
terms their state legislators may serve. Fueled in part by voter anger and cynicism (Karp
1995; Southwell 1995), the term-limits movement has claimed victories in a diverse array
of states. States with highly professionalized legislatures, such as California and
Michigan, have adopted term limits, as have states with citizen-legislatures, such as
Oklahoma and Maine. The provisions of these term limit laws are not uniform across
Convention