An examination of the effects of balanced budget laws on state borrowing costs

An examination of the effects of balanced budget laws on state borrowing costs

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Article ID: iaor2003861
Country: United States
Volume: 14
Issue: 2
Start Page Number: 159
End Page Number: 173
Publication Date: Jan 2002
Journal: Journal of Public Budgeting, Accounting and Financial Management
Authors:
Keywords: management, planning, government, statistics: regression, law & law enforcement
Abstract:

This study investigates the relationship between different levels of state balanced budget laws and state borrowing costs. Using federal guidelines for state balanced budget law classifications, this author inserted dichotomous variables in an empirical model of state borrowing costs. Ordinary Least Squares Regression is utilized to determine which balanced budget laws are recognized in state interest costs. The results indicate a significant relationship between the most restrictive levels of balanced budget laws and state borrowing costs. The strongest balanced budget laws are associated with lower interest costs while the weakest budget laws are associated with higher costs. It appears that taxpayers in states with weaker balanced budget amendments may not be as protected against excessive government growth as those in states with the most stringent balancing requirements.

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