A Dynamic Scoring Simulation Analysis of How TEL Design Choices Impact Government Expansion

John D. Merrifield, Barry W. Poulson

Abstract


A dynamic scoring simulation analysis compares the size-of-government effects of four state-government-level Tax and Expenditure Limit (TEL) and Budget Stabilization Fund (BSF) combinations. Two of the four TEL-BSF combinations have population-plus-inflation as the basis for the spending growth limit.  The other two TEL-BSF combinations have personal-income-growth as the basis for the spending growth cap. A sensitivity analysis, including a regression analysis of Monte-Carlo-generated ‘observations’, measures the significance of the model parameter choices. The personal-income-growth TELs don’t constrain spending growth at all in some states.  In most states, a TEL based on a significant multiple of population plus inflation restrains fiscal expansion more than either version of our personal income growth TEL. The findings provide some important policy issues: there are significant differences in the fiscal and economic impacts of likely TEL design alternatives, and there is a likely trade-off between stringency and political durability.


Keywords


fiscal consolidation; budget stabilization; fiscal rules; state fiscal policy; TEL

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References


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DOI: http://dx.doi.org/10.18533/jefs.v4i02.211

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