Property Tax Limits, Balanced Budget Rules, and Line-Item Vetoes

This paper explores the early development of three important fiscal institutions faced by U.S. state governments: property tax limits (PTLs), balanced budget rules (BBRs), and the gubernatorial line-item veto (LIV). Specifically, this study attempts to provide historical context for their development and an empirical investigation of their long-run effect on state finances (running from 1830 to 1920). Results, which are robust to a number of specifications, suggest that early PTLs decreased both revenues and expenditures, BBRs had a larger effect on revenues rather than expenditures, while the LIV had a somewhat limited effect on both revenues and expenditures.