Scandinavian Working Papers in Economics

Working Paper Series,
Uppsala University, Department of Economics

No 2019:5: Term Length and Public Finances: The Case of U.S. Governors

Jonas Klarin ()
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Jonas Klarin: Department of Economics, Postal: Department of Economics, Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden

Abstract: This paper studies how a politician’s term length affects public finances. I test whether the gradual increase fromtwo- to four-year terms for American governors affects state finances using a rich state-year panel stretching back almost a century. The results show that adopting four-year terms decreases annual expendituresand revenues by 6 %. The effect of the reform is present immediately after voters approve the ballot measure, when the last two-year-term governor is still in office, which suggests that the mechanism at work is stronger re-election incentives for the incumbent. The effect is larger among electorally ’at risk’ governors. Democratic governors respond to longer terms by increasing public employment instead of decreasing expenditures.

Keywords: Term Length; U.S. Governors; Political Agency; Elections

JEL-codes: D72; H11; H70; P16

50 pages, May 8, 2019

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