Limiting Government through Direct Democracy: The Case of State Tax and Expenditure Limitations

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Defenders of individual freedom and limitedgovernment have often favored representativegovernment over direct democracy. Since 1978,however, activists have proposed and passed initiativeslimiting taxing and spending by stategovernments in the United States. State legislatureshave occasionally imposed tax and expenditurelimitations (TELs) on themselves.

TELs passed by initiative are more restrictiveand contain fewer loopholes than those enactedby state legislatures. Regression analysis of a comprehensive data set of state government spendingshows that TELs enacted by citizen initiativescause per capita public spending to decrease; TELsenacted by state legislatures are associated with anincrease in government expenditures.

Some TELs are more effective at limiting governmentthan others. TELs that limit governmentspending to the inflation rate plus populationgrowth and mandate immediate rebates ofgovernment surpluses are more effective at limitinggovernment outlays than are other TELs.

Michael J. New

Michael J. New, a Ph.D. candidate at Stanford University, was a data analyst and research assistant at the Cato Institute in 2001.