Wenchi Wei, Assistant Professor, School of Public Administration and Policy, RUC

Author

Wenchi Wei 

Abstract

Despite abundant evidence regarding the influence of US state-imposed tax and expenditure limitations on local governments, the causes and consequences of local overrides remain largely unexplored. This article comprehensively examines the fiscal effects of local overrides of Massachusetts’s state-enforced property tax limit. Existing evidence has shown that pressure from powerful local interest groups, such as public schoolteachers and public employees, is crucial for determining agenda-setting and the successes or failures of measures overriding the statewide property tax limit. In that sense, fiscal constraints are able to curb bureaucrats’ budget-maximizing behaviors. Empirically, a regression discontinuity design estimation shows that local property tax limit overrides increase local property taxes and total revenues, decentralize the state–local fiscal relationship, and improve local budgetary balance. However, overrides do not affect local government spending.

Introduction

Local governments in the United States are subject to a variety of institutional constraints (Bowler & Donovan, 2004; Gerber & Hopkins, 2011). Regarding government fiscal management, scholars have paid much attention to state-enforced tax and expenditure limits (TELs) on localities, which are adopted in almost all US states and in various forms (Anderson, 2006; Bae et al. 2012; Mullins & Wallin, 2004). Previous studies generally attribute the prevalence of TELs across the United States to the emerging tax revolt movement dating back to the 1970s. Heavy property tax burdens and large government budgetary surpluses provoked anti-tax sentiments among local citizen-voters (Mullins & Wallin, 2004). After California’s Proposition 13 passed in 1978, Massachusetts enacted Proposition 2½ in 1980 to limit local property tax rates and their growth. Moreover, Proposition 2½ allows local governments to override the property tax limit, provided that local officials propose an override and voters approve it in local referendums.

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