A Dynamic Scoring Simulation Analysis of How TEL Design Choices Impact Government Expansion

Abstract

A dynamic scoring simulation analysis compares the size-of-government effects of four state-government-level Tax and Expenditure Limit (TEL) and Budget Stabilization Fund (BSF) combinations. Two of the four TEL-BSF combinations have population-plus-inflation as the basis for the spending growth limit. The other two TEL-BSF combinations have personal-income-growth as the basis for the spending growth cap. A sensitivity analysis, including a regression analysis of Monte-Carlo-generated ‘observations’, measures the significance of the model parameter choices. The personal-income-growth TELs don’t constrain spending growth at all in some states. In most states, a TEL based on a significant multiple of population plus inflation restrains fiscal expansion more than either version of our personal income growth TEL. The findings provide some important policy issues: there are significant differences in the fiscal and economic impacts of likely TEL design alternatives, and there is a likely trade-off between stringency and political durability.