Finance and Economics Discussion Series

Spending Within Limits: Evidence from Municipal Fiscal Restraints

Leah Brooks, Yosh Halberstam, and Justin Phillips
2012-52

Abstract: This paper studies the role of a constitutional rule new to the literature: a limit placed by a city on its own ability to tax or spend. We find that such a limit exists in at least 1 in 8 cities, and that limits are not adopted in response to high levels of or variability in taxation. After limit adoption, municipal revenue growth declines by 16 to 22 percent. Our results suggest that institutional constraints may be effective when representative government falls short of the median voter ideal.

Keywords: Tax and expenditure limits, cities