February 26, 2015

Conclusion

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When comparing Florida to other states, one thing that stands out is that Florida has been fiscally conservative and fiscally responsible. Florida’s state budget has been revenue driven, so when tax revenues rose during the housing bubble in the first few years of the 21st century, expenditures rose along with the increase in revenues. But when revenues fell, so did expenditures, rather than being propped up by tax increases as has happened elsewhere. One area in which Florida has not been fiscally conservative, or fiscally responsible, is in its expansion of the state’s property insurer, which has become the largest homeowners insurance company in the state. And while fiscal conservatism is often associated with business friendly policies, Florida’s land use policies have often been viewed as an impediment to business activity. But stepping back to look at the big picture, Florida has held the line on tax increases, has cut or eliminated taxes, and has seen a decline in both state spending and state government employment per person for decades.

One possible explanation for Florida’s fiscal conservatism and fiscal responsibility is that Florida’s citizens are fiscally conservative and the state government is responding to voter preferences. But certainly voters in every state would want fiscally responsible governments (though not necessarily fiscally conservative ones). Adding some skepticism to the idea that Florida’s fiscal policy is primarily the result of voter preferences, Florida is typically viewed as a swing state that does not lean strongly to the political left or right. Also, voters are often poorly informed, especially about state government finances, so politicians seeking political support can often get it by promising fiscally irresponsible spending that provides visible present benefits in exchange for costs that are pushed into the future, and therefore less visible to voters.[1]

A more likely explanation for differences between Florida and other states is differences in political institutions. While it is common to think about “government” making decisions and establishing public policies, governments do not make decisions—people do. Those public-sector decision makers work within an institutional framework that affects the incentives they have and constrains the choices they can make.

Two big factors that separate Florida from most states are that Florida has no personal income tax and Florida does have term limits for members of its legislature. The absence of a personal income tax has an obvious constraining effect on state government revenues and expenditures.[2] Florida is one of only seven states that do not have a personal income tax[3] and one of fifteen states that have term limits for state legislators. In both cases, Florida is in the minority of states, but it is not completely unique. However, only two other states—Nevada and South Dakota—have both term limits and no personal income tax, and Florida shares with those two states fiscal conservatism in state government expenditures. Nevada is the lowest of all states in state government expenditures per capita, while South Dakota is in the bottom quarter of states, with only eleven other states spending less per capita. This suggests that a combination of term limits and a lack of income tax is associated with fiscal conservatism in government.

Florida also provides for many ways to amend the state constitution, with little restriction on the content of the amendments. The citizen initiative amendment process has had some influence on state public policy. Nevada also allows constitutional amendments through citizen initiatives while South Dakota does not. Perhaps a combination of those three factors (no personal income tax, legislative term limits, citizen initiative constitutional amendments) has cumulative effects on state public policy. This study has focused on Florida, and one cannot draw general conclusions about the effects of institutional differences from a study of only one state. However, it does appear that Florida’s fiscal conservatism and fiscal responsibility are not the result of differences in the preferences of Floridians compared with citizens in other states. Also, Florida’s fiscal policies cannot be the result of specific individuals who have held leadership positions in Florida’s state government because political leaders have changed frequently due to term limits, so it is plausible that the state’s institutional framework has had an effect.

Ultimately, the purpose of this study is not to lay out a blueprint for state economic policy, or even to serve as a report card for Florida, listing areas in which the state has done well or poorly. Rather, it is meant as a public policy narrative, to say “here’s what has happened in Florida,” and to allow readers, informed with that background, to draw their own conclusions about Florida’s economic policies over the past several decades.


[1] See Downs, Economic Theory of Democracy; Caplan, Myth of the Rational Voter. Caplan argues that voters often vote for policies that play to their biases but work against the public interest.

[2] For a detailed argument about how excluding a tax base like the personal income tax constrains government expenditures, see Geoffrey Brennan and James M. Buchanan, The Power to Tax: Analytical Foundations of a Fiscal Constitution (Cambridge: Cambridge University Press, 1980).

[3] Tennessee and New Hampshire do not tax wage income, so if they were included, there would be nine states.