Cato Policy Analysis No. 420 December 13, 2001

Policy Analysis

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

by 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.

Executive Summary

Defenders of individual freedom and limited government have often favored representative government over direct democracy. Since 1978, however, activists have proposed and passed initiatives limiting taxing and spending by state governments in the United States. State legislatures have occasionally imposed tax and expenditure limitations (TELs) on themselves.

TELs passed by initiative are more restrictive and contain fewer loopholes than those enacted by state legislatures. Regression analysis of a comprehensive data set of state government spending shows that TELs enacted by citizen initiatives cause per capita public spending to decrease; TELs enacted by state legislatures are associated with an increase in government expenditures.

Some TELs are more effective at limiting government than others. TELs that limit government spending to the inflation rate plus population growth and mandate immediate rebates of government surpluses are more effective at limiting government outlays than are other TELs.

Full Text of Policy Analysis No. 420 (PDF, 17 pgs, 95 Kb)

2001 The Cato Institute
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