1. Background on State Term Limits
State Legislative Term Limits Impact on Cigarette Taxation
Thomas Ketcham
Advisor: Dr. Khawaja Mamun
Sacred Heart University
Abstract
Endogeneity Problem
Background on State Term Limits
Fiscal policy in the United States is impacted by a multitude of factors such as macroeconomic and political factors. In this regard, we explore an overlooked factor that has a major impact on fiscal policy, namely the legislative turnover. In particular, we study the overall impact that state legislative turnover has on federal and state cigarette taxation from Theoretically, a state with lower turnover of the legislator will influence the cigarette taxation. Lower turnover and thus long tenure may lower the intensity of lobbying thus raise taxes. This result is similar to the evidence found in political competition literature (Besley, Persson and Sturm, 2010) where lower competition leads to higher taxes. We have to address the methodological issue if turnover may be endogenous as voters are likely to re-elect state legislators who adopt favorable fiscal policies. We adopt the quasi-experimental variation in turnover generated by state term limit provisions used by Uppal and Glazer (2015) to address this potential endogeneity issue.
Legislative turnover may be endogenous as voters are more likely to re-elect legislators that adopt favorable fiscal policies. With the implementation of state term limits however legislators do not need to worry about re-election therefore turnover is not impacted by favorable policies.
Table 1
Term limits amassed great popularity through the 1990s as citizens deemed them a necessary incentive to dictate the fiscal policy of their legislator and ensure the legislator has concern for the opinion of his or her constituents. Table 1 highlights which states enacted term limits and when said term limits went into effect.
States enact legislative term limits in order to promote political competition through increased legislative turnover and in an attempt to prevent the adoption of stagnant fiscal policy. Figure 1, below, illustrates the difference in average legislative turnover between states with and without term limits.
State
Year
Limited: Terms (Total Years Allowed)
Year Law Takes Effect
Arizona
1992
House: 4 terms (8 yrs)
House: 2000
Senate: 4 terms (8 yrs)
Senate: 2000
Arkansas
House: 3 terms (6 yrs)
House: 1998
Senate: 2 terms (8 yrs)
California
1990
Assembly: 3 terms (6 yrs)
Assembly: 1996
Senate: 1998
Colorado
Florida
Louisiana
1995
House: 3 terms (12 yrs)
House: 2007
Senate: 3 terms (12 yrs)
Senate: 2007
Maine
1993
House: 1996
Senate: 1996
Michigan
Senate: 2002
Missouri
House: 2002
Montana
Nebraska
Unicameral: 2 terms (8 yrs)
Unicameral: 2008
Nevada
1994
Assembly: 6 terms (12 yrs)
Assembly: 2006
Senate: 2 terms (12 yrs)
Senate: 2006
Ohio
Senate: 2 terms (8yrs)
Oklahoma
Cumulative 12 yrs in either
House: 2004
chamber (consecutive or non)
Senate: 2004
South Dakota
Wyoming
House: 6 terms (12 yrs)
Results
As the real state cigarette taxation increases, the average state legislative turnover slightly decreases. The change in average state legislative turnover is very small which is logical being that real cigarette taxation does not impact all constituents. Furthermore, those that are affected may or may not vote. This relationship agrees with our original hypothesis that lower turnover would cause higher taxes as there is less political competition.
Methodology & Empirical Model
Literature Review
Effect of Average Turnover of State Legislators on Real State Cigarette Taxation across all 50 States from :
Uppal and Glazer (2015): This paper examined how state legislative turnover affects economic growth and general fiscal policy. Basis for our empirical model constructed using similar theoretical framework.
Besley, Persson, and Sturm (2010): This paper examined the intensity of political competition as it relates to economic growth. The findings that less competition results in higher taxation furthered our discussion of state legislative term limits.
𝑌 𝑖𝑡 = 𝛼 𝑖𝑡 + 𝛾 𝑡 + 𝛽 × 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 𝑖𝑡 + 𝛿 × 𝑋 𝑡 + 𝜇 𝑖𝑡
Policy Implications
Demographic Control Variables:
Poverty Rate per state
Unemployment Rate per state
Percentage of people age 65 and older per state
Percentage of African Americans per state
Longer tenure reduces the intensity of political lobbying thus raises the question how much does political lobbying affect the adoption of fiscal policies.
Term limits reduce the likelihood of the incumbency remaining in office thereby increasing the opportunity of outsiders entering the political realm. Term limits could present more legislative opportunities for minorities.
Political and Economic Control Variables:
Total Expenditure per capita
Tax Revenue per capita
State Personal Income per capita