Single party rule and state spending: Discipline through disagreement

Ask a politician what the goal of their party is and they will tell you: To dominate the government.

Democrats and Republicans alike would like nothing more that to totally eliminate the other party from the legislature.

That may be good for the party, but new research says its bad for the budget.

A paper published in the Quarterly Journal of Economics finds that political competition reduces overspending by state legislatures (paywall version; free working paper).

The authors develop a model of legislators, some whom have a bias for overspending. In other words, these legislators want to boost current spending and put off any spending cuts.

Their model predicts that when unanimity is anticipated—for example, under one-party rule—legislators give in to the temptation to overspend.

  • On the one hand, if unanimous support for high spending is expected in future legislatures, legislators know that low spending today cannot stop policymakers from raising spending in the future.
  • On the other hand, if unanimous support for low spending in the future legislatures is expected, legislators can spend today and knowing that future legislatures will clean up the mess.

This seems to cross party lines. It was the Republican-dominated Congress that pushed the infamous Bridge to Nowhere.

But, the researchers argue, as legislature gets closer to a 50/50 split of those that are fiscally responsible and those that are spendthrifts, the possibility of gridlock increases. With gridlock, the status quo prevails and spending will not increase as much as the high spenders would like. In that way, political competition leads to fiscal responsibility.

Neat idea, but can you prove it?

The authors do not provide any statistical evidence supporting their model, but past research seems to be consistent with their model.

For example, statistical analysis published in the Review of Economic Studies finds that increases in political competition are associated with:

  • Lower tax revenue as a share of state personal income, meaning residents have greater disposable income;
  • A higher level of infrastructure spending by state governments; and
  • A higher probability that a state uses a right-to-work law, which makes it easier for employers to hire workers and easier for job-seekers to get work.

Thus, there is some evidence that greater political competition is associated with higher growth rates of state personal income per person.

Competition: It’s good for business and good for government.