“Pick Your Poison: Do Politicians Regulate When They Canʼt Spend?”

From Noel Johnson, Matthew Mitchell, and Steven Yamarik:

We investigate whether laws restricting fiscal policies across U.S. states lead politicians to regulate more instead. We first show that partisan policy outcomes do exist across U.S. states, with Republicans cutting taxes and spending and Democrats raising them. We then demonstrate that these partisan policy outcomes are moderated in states with no-carry restrictions on public deficits. Lastly, we test whether unified Republican or Democratic state governments regulate more when constrained by no-carry restrictions. We find no-carry laws restrict partisan fiscal outcomes but tend to lead to more-partisan regulatory outcomes.

The presentation slides are here.  In my view this is one reason of many why a balanced budget amendment is not a workable path toward fiscal conservatism. 

Comments

My argument would be the other side of coin; government spending constraint or reduction will not provide a jolt to the economy that folks presume, even if it assures financial concerns. It is regulation that must be rolled back in favor of preserving the integrity and innovation of markets.

For example, if the government were to intentionally adjust the rules and laws of a free market in both health care and energy, the economy would almost immediately begin to produce 300k+ jobs a month, even at present debt and tax levels.

No, politicians give tax breaks when they can't increase spending to subsidize an industry (ethanol, oil), or target narrow tax reform to an industry. Mankiw's blog has a graph of government spending v. Targeted tax expenditures which show spendin fairly constant, and tax expenditures growin almost exponentially. The problem with tax expenditures is that spending usually gets curtailed, but tax expenditures never do.

This next cycle will be a feeding frenzy for tax lobbyists and politicians when the corporate tax regime comes up for review.

Money to be made.

I would also add that we have rules for earmarked fiscal expenditures, but not for tax earmarks.

Of course, taxes must already be high for tax breaks to have value.

Not really. GE lobbies for tax breaks and pays next to 0

The value of paying 0 tax depends on the alternative. If the government generally taxes 90% of corporate income, then yes, GE paying no tax would constitute a major advantage. If the rate were 1%, they wouldn't care so much to lobby for special tax treatment. I don't charge GE any tax; does that mean I'm giving them a massive subsidy?

This might be of amusement value regarding government spending:

From the Intelligence Advanced Research Projects Activity (IARPA) web site http://www.iarpa.gov/solicitations_iarpa.html :

**Please be advised that we are experiencing problems receiving mail through the Unites States Postal Service (USPS). As such, offerors should use one of the following commercial delivery services: UPS, FedEx, or DHL

"One possible explanation for this pattern is that Democrats and Republicans do not act in accordance with our priors. Alternatively, a more likely interpretation.... "

Candidate for sentence (paragraph?) of the day

garbage can regressions and no theory = MR entry

Forget BBA. The problem is one of incentives. Legislators need Pay for Performance.

I say we pay a bonus to Congress-critters equal to 1% of every dollar of spending they cut from the budget or collect in tax revenue by eliminating IRS loopholes/credits/deductions. They should also get a bonus that depends on real GDP growth for the 10 years following any term in office. (Hopefully after the first few Congress sessions with these rules the latter bonus should produce more income than the first bonus; once all the fat is cut from the budget) Voter discipline should keep the Defense Department and Social Security funded.

And hell, while we're at it, pay 'em a bonus for every 1,000 pages they cut from the Federal Code.

Naturally their base salary should be very low, and if they're caught taking $1 from anyone not a homo sapien constituent of their office: tar, feathers, and banned for life from public service. (And make sure they're required to run around the Capital Building three times while covered in said tar and feathers, and be chased by schoolchildren who get to beat them with sticks if they run too slow, and upload a video of it to YouTube)

There. That should handle the incentives issue.

This highlights an important trade-off. Are we indifferent between higher taxes or more regulation? We shouldn't be, especially at current levels of taxation. I would gladly trade an increase in the tax take (assuming it wasn't achieved through a mechanism with horrible dead weight costs) in exchange for significant deregulation. If we can get some growth, then there should be less pressure on taxes..

Between direct fiscal policy and mere regulation for regulation's sake is legislation that allocates responsibility to private parties.

The health care reform law, while it contains taxing and spending elements, for example, is predominantly a law that squarely allocates responsibility over who should buy private health insurance in the private health insurance market for whom so that fewer people need government provided health insurance.

Worker's compensation laws, and various fault and no-fault based mandatory automobile laws are prior precedents along the same lines. Many of these responsibilities are implicit and subtle. People who don't qualify for welfare programs are responsible for providing all consumer goods for themselves and their dependents - enforced by child neglect and divorce laws.

I think the debate today is as simple as whether you believe the first and second enumerated powers of Congress are, or should be, constitutional. Nearly all House Republicans have voted to make their first and second enumerated powers unconstitutional.

But that doesn't mean they don't want Congress to promote the general welfare, because they seek to regulate individuals in the way they live, all based on the present Republican Party stand on what is good for the general welfare. Rather than tax for the general welfare, they regulate for the general welfare. Rather than tax drug use to offset the cost of drug use, they regulate drug use to extinction with thousands of pages of laws that detail all sorts of ways to extinguish individual drug use. For example, there are hundreds of pages of regulation on how money is handled, how much you can carry, whether the government can just take it and require your prove it is completely innocent of crime to be freed back to your care, how banks must report the transfers of money from cash to deposits, between accounts, between banks, from accounts to cash, accounts to checks.

Or consider the Republican view of the welfare of children. Rather than tax to promote the welfare of children, they seek to promote their welfare with regulations. You must provide everything for your child, even if you are poor,otherwise you are committing a crime. If you are poor and you are raped, then you must depend on God's will that you have a child you can't afford, but if you don't care for the child as God willed you because you are poor, you have failed God and than is a crime, because Congress is not going steal by tax to do God's will, but will put you in jail for neglecting God's child and failing God.

When you get old and can't care for yourself, it is immoral to steal with taxes to care for you, but it is immoral for you to not pay debts, so bankruptcy will be highly regulated, but to prevent cheating, it will be illegal to kill yourself, and while you can't be convicted if you succeed, Republicans have regulations to go after anyone that aided you in killing yourself. If you are dying, then the government regulation requires every possible measure be expended to keep you alive, but no taxes should be levied to pay to keep you alive, and then once you are no longer dying, you are on your own, and medical providers must hound you to get paid for the life saving care regulation mandated no matter your ability to pay.

The first and second enumerated powers of Congress are first and second because of the problems of 1787 faced by the Continental Congress and the nation, economic problems of debt and general welfare, with the Continental Congress debt forced onto the People. So, the solution was to make Congress take responsibility for the debt and pay it off with taxes.

Shay's Rebellion was caused by those who worked for the government being sent to debtor's prison because the debt they held from the Continental Congress was in default.

The House Republicans include a large number who want to return to 1787, when the debt of Congress is worthless because Congress won't tax to pay debt. Yet, those same Republicans see promoting their version of the general welfare to be important so they want to dictate marriage on their terms with regulation they put in the Constitution.

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