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separately for income taxes, general sales taxes, and total taxes (which includes sales
taxes, income taxes, and corporate taxes). A dummy variable indicates if a state has
legislative term limits. In most states there is a substantial amount of time from the
passage of legislative term limits to when the first cohort of legislators is barred from
running for reelection. To account for this, the variable indicating the presence of term
limits is coded 1 beginning with the legislative term before the first class of legislators is
termed out of office. Since legislators are forward-looking and should anticipate the
effects of term limits before they are actually forced from office, the impact of term limits
on state fiscal policy should appear before the first cohort is forced from office. The
vector X
it
contains variables indicating the presence of other fiscal institutions and
political factors, such as balanced budget rules, tax and expenditure limits, revenue limits,
supermajority voting requirements for new tax legislation, divided government, and the
party affiliation of the governor. Control variables for demographic and economic
factors commonly found to be significant in empirical studies of state fiscal policy are
also included. These variables are state income per capita, the unemployment rate,
region, and population.
This paper examines data from 1977 to 2001; and includes all 48 contiguous
states except Nebraska, which has a unicameral legislature. Data were obtained from the
Statistical Abstracts of the United States, State Government Tax Collections, and the
Book of the States. The models are estimated using feasible generalized least squares,
correcting for cross-panel correlation and heteroskedasticity as well as first order
autocorrelation.
2
State and year dummy variables are also included in order to control for
Convention