Do Spending Limits Work?

by Karl Kurtz

The Legislative Studies Section of the American Political Science Association awarded the 2008 Alan Rosenthal prize--for the best published work by a junior scholar that has potential value to legislative practitioners--to University of Rochester Prof. David Primo for his book, Rules and Restraint: Government Spending and the Design of Institutions.  Here is an excerpt from the citation for the award:

...Primo argues that budget rules, requiring a balanced budget and spending limits, usually fail because these rules are not properly designed and there is no real threat of credible enforcement. Instead he finds legislators’ desire to honor budget commitments is outweighed usually by their desire to provide benefits to politically powerful constituents such as homeowners, seniors, and businesses. Primo’s argument challenges the assumption in most studies that budget rules will be credibly enforced by legislators.

On his own web page, Prof. Primo has a further description of the book:

Government spending has increased dramatically in the United States since World War II despite the many rules intended to rein in the insatiable appetite for tax revenue most politicians seem to share. Drawing on examples from the federal and state governments, Rules and Restraint explains in lucid, nontechnical prose why these budget rules tend to fail, and proposes original alternatives for imposing much-needed fiscal discipline on our legislators.

One reason budget rules are ineffective, David Primo shows, is that politicians often create and preserve loopholes to protect programs that benefit their constituents. Another reason is that legislators must enforce their own provisions, an arrangement that is seriously compromised by their unwillingness to abide by rules that demand short-term sacrifices for the sake of long-term gain. Convinced that budget rules enacted through such a flawed legislative process are unlikely to work, Primo ultimately calls for a careful debate over the advantages and drawbacks of a constitutional convention initiated by the states—a radical step that would bypass Congress to create a path toward change. Rules and Restraint will be required reading for anyone interested in institutional design, legislatures, and policymaking.

Because I have not yet read the book, I can't say how much of it draws on state examples of spending limits and balanced budget requirements.

The Rosenthal prize is funded by NCSL's Trust for Representative Democracy and the State Legislative Leaders Foundation.  For previous Rosenthal prize winners, click here and here.

Comments

[David Primo]

I want to thank Karl for his continued support of the Rosenthal Prize and his kind mention of my book. He asked if I would post some brief thoughts on how the book applies to state legislatures. Rules and Restraint does so in two ways.

First, I examine empirically whether states with stricter balanced budget rules are able to maintain lower levels of spending than those with weaker rules. I find that they do, consistent with previous work finding that they also lead to lower deficits. The key to success in both cases is effective enforcement, which is operationalized by me (and others) as an elected high court in the state ruling on when violations of balanced budget rules have occurred.

Second, the book provides a foundation for thinking about budget rule design more generally. I argue that there are two components to a rule: its design and its enforcement. Too often attention is paid to design without regard to whether or not the rule will actually be enforced when difficult budgetary times arise. Often the opposite occurs: reformers are so focused on enforcement (say, by making the rule an amendment to a constitution and therefore harder to change or violate) that they are willing to allow poorly designed rules to be enacted.

[eric1]

Just wanted to make an observation about David Primo's mention of a National Constitutional Convention to bring about spending limits. Back in the 1990's, 32 states passed bills calling for a National Constitutional Convention to hopefully enact a federal balanced budget amendment. Only 2 states short of the 34 required to bring about a Convention, the Congress "got the message" and FINALLY balanced the budget. This happened with Clinton as President and with a Republican-led Congress.