Removing TELs solves. Leads to lower debt levels, and boosts economic growth and development
Steven Deller et al 20, Department of Agricultural and Applied Economics, Center for Community and Economic Development, University of Wisconsin—Madison. Craigh Maher, 2 School of Public Administration, University of Nebraska-Omaha. and Judith Stallmann, 3 Departments of Agricultural and Applied Economics, Rural Sociology and Public Affairs, Community Development Extension, University of Missouri. "Do tax and expenditure limitations exacerbate rising income inequality?" Economics and Politics. //pipk
Bae and Jung (2011), for example, find that the restrictiveness of state TELs has no impact on the overall level of either state expenditures or revenues. Amiel et al. (2014) find that states switch their revenue mix to more reliance on fees and miscellaneous revenues and the mix of expenditures is affected. Nicholson-Crotty and Theobald (2011) find that the presence and restrictiveness of TELs influence how states use federal transportation aids; states with no TEL spend 66 cents of state funds for every federal dollar, while those with the most restrictive TELS spend only 36 cents of state funds per federal dollar for transportation. Shi (2017) finds that TELs imposed on local governrements increased the number of special districts, specifically to side step the restrictions of the TEL.
Tax and expenditure limitations tend not to fulfill the intended outcomes of a smaller and more efficient government because they are, at best, a blunt instrument. For example, Deller, Maher, Stallmann, and Amiel (2013) find that states with more restrictive TELs tend to have higher levels of debt. While one could argue that states incur debt to circumvent revenue limits, they find that states with TELs with expenditure limits also have higher levels of debt. In a study of the impact of TELs on public infrastructure, Deller, Amiel, Stallmann, and Maher (2013) find that TELs that are more restrictive have a weak negative impact on the percentage of bridges deemed structurally deficient but are associated with an increasing number of bridges deemed functionally obsolete. Benson (1980) found that California's Proposition 13 increased the interest costs of general obligation bonds, a reflection of poorer bond ratings. Wagner (2004) reports that a revenue TEL lowers credit ratings and an expenditure TEL increases credit ratings of state governments. Stallmann, Deller, Amiel, and Maher (2012) report similar findings for states using indices of TEL restrictiveness by type of TEL. In complementary studies, Maher, Deller, Stallmann, and Park (2016) found more restrictive TELs on cities have a negative impact on their credit ratings and Maher, Park, and Harrold (2016) found that municipal TELs reduced other postemployment benefit (OPEB) funding ratios.
Tax and expenditure limits have also been promoted as a means of fostering economic growth and development by reducing taxes and improving government efficiency (Poterba & Rueben, 1995). If they promote economic growth and development, one could argue that TELs could improve income equality. The handful of studies that explore the relationship between TELs and economic performance (e.g., Deller & Stallmann, 2007; Stallmann & Deller, 2010; Stallmann & Deller, 2011; Amiel, Deller, & Stallmann, 2012; Deller, Stallmann and Amiel,2012; Bae, Moon, & Jung, 2012) find no such positive relationship and more restrictive TELs may actually hinder economic growth and development. While there is much debate in the literature as to the relationship between economic growth and income inequality (e.g., Panizza, 2002), if such a relationship does exist and TELs have a dampening affect on growth, there could be an indirect link between TELs and income inequality.