October 10, 2011

How Institutions Affect Government Spending

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U.S. fiscal policy at the federal, state, and local level is on an unsustainable path. While reformers should look for ways to reduce spending on particular budget items, tomorrow’s legislatures may easily reverse these cuts. In contrast, a change in the rules that govern the political process—the “institutions” that shape a budget—can have a lasting effect on spending for years to come.

As this week’s chart by Mercatus Center Research Fellow Matthew Mitchell and Nick Tuszynki shows, many institutions are associated with lower per-capita spending. Over the last few decades, a number of researchers have examined the effect that these institutions can have on state spending. Mitchell and Tuszynski have reviewed the results of these studies. As the chart shows,policy makers interested in arresting the unsustainable growth of government spending have a number of options available to them.