Alt and Lowry: Divided government, fiscal institutions, and budget deficits

Alt and Lowry. 1994. Divided government, fiscal institutions, and budget deficits: Evidence from the states. American Political Science Review 88:811-828.

MAIN POINT

At the state level, three Xs affect fiscal outcomes (i.e. the response to fiscal surplus or deficit): divided government, institutions, and party control.

VARIABLES AND HYPOTHESES

The authors make 8 hypotheses from the three main variables.

X1: Party control. Without parties, a "benevolent dictator" model would predict simply setting taxes to minimize deadweight loss and provide maximal benefits.

X2: Divided government. Can come in 8 combinations. The authors focus mostly on split-legislature and split-branch divisions. (Indicidentally, they claim that focusing on the differences between split-legislature and split-branch divisions can contribute important insights.)

X3: Institutions. Laws that require a balanced budget or that prohibit carrying a deficit over into the next fiscal year make a balanced budget more likely.

DATA

The authors use data from the early 1980s from 48 states.

FINDINGS

1. Divided party control matters, especially when responding to exogenous shocks. Divided control makes it harder to quickly adjust to exogenous shocks.
2. Institutional constraints on fiscal policy matter--at least when party control is unified.
3. There are systematic differences between Republicans and Democrats, though more complex than simply "Democrats spend and tax more."