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Fiscal Management Implications of the TABOR Bind

Authors


Christine R. Martell is an assistant professor in the Graduate School of Public Affairs, University of Colorado at Denver and Health Sciences Center. Her research interests pertain to state and local government finance, both domestically and internationally.
E-mail: christine.martell@cudenver.edu

Paul Teske is a professor in the Graduate School of Public Affairs, University of Colorado at Denver and Health Sciences Center. His research interests include school funding, public finance, and regulation.
E-mail: paul.teske@cudenver.edu

Abstract

Following a wave of state-adopted tax and expenditure limitations (TELs), in 1992 the state of Colorado amended its constitution with the strictest TEL to date. Called the Taxpayer Bill of Rights and known as TABOR, the amendment has limited the size and scope of Colorado governments. Praised as a restraint on unbridled government growth in good economic times, TABOR reared its highly restrictive head as the state economy turned downward. The central issue explored is how binding tax and expenditure limitations affect the state’s ability to weather economic recessions and employ sound fiscal management practices. As in most institutional arrangements, the devil is in the details. The analysis presented here reveals that binding limitations create perverse incentives for budgetary actors to earmark, privatize, and shift responsibilities to other jurisdictions, which ultimately combine to reduce the state government’s ability to perform and to maintain sound fiscal management practices.

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