June 1, 2012

Institutions and State Spending: An Overview

U.S. fiscal policy at the federal, state, and local level is on an unsustainable path.1Although reformers look for ways to reduce spending on particular budgetitems, tomorrow’s legislatures may easily reverse these cuts. In contrast, a changein the rules that govern the political process—the “institutions” that shape a budget—canhave a lasting effect on spending for years to come.2Codified in statutes and in constitutions,these institutions include the rules of budgeting, electioneering, and legislating. They influence the decisions of legislators, governors, presidents, bureaucrats, voters, and even lobbyists. Institutional reform can be a more effective and sustainable path to fiscal probity than aone-time budget cut. In this article, we summarize the empirical investigations of more thana dozen state-level institutions. The lesson for both state and federal policymakers is that anumber of institutional reforms are more likely to put spending on a more sustainable path.

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