TY  - JOUR
AU  - Bohn,Henning
AU  - Inman,Robert P.
TI  - Balanced Budget Rules and Public Deficits: Evidence from the U.S. States
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 5533
PY  - 1996
Y2  - April 1996
UR  - http://www.nber.org/papers/w5533
L1  - http://www.nber.org/papers/w5533.pdf
N1  - Author contact info:
Henning Bohn
Department of Economics
University of California Santa Barbara
North Hall 2127
Santa Barbara, CA 93106
Tel: 805-893-4532
E-Mail: bohn@econ.ucsb.edu

Robert P. Inman
Department of Finance
Wharton School
University of Pennsylvania
Philadelphia, PA  19104-6367
Tel: 215/898-8299
Fax: 215/898-6200
E-Mail: inman@wharton.upenn.edu
M2  - featured in NBER digest on 1996-09-01
AB  - Most states (Vermont is the exception) have a constitutional or statutory limitation restricting their ability to run deficits in the state's general fund.  Balanced budget limitations may be either prospective or beginning-of-the-year requirements or retrospective or end-of-the-year requirements.  Using budget data from a panel of 47 U.S. states for the period 1970-1991, the analysis finds that states with end-of-the-year (not prospective) balance requirements enforced as constitutional (not statutory) constraints by an independently elected (not politically appointed) state supreme court do have significant positive effects on a state's general fund surplus.  The surplus is accumulated through cuts in spending, not through tax increases.  It is saved in a state `rainy day' fund in anticipation of future general fund deficits.  In contrast, prospective requirements, statutory end-of-the-year requirements, or constitutional end-of-the- year requirements enforced by a politically appointed court do not significantly constrain general fund deficit behavior.  Finally, we find little evidence that the constraints `force' deficits into other fiscal accounts.
ER  -