TIMOTHY BESLEY AND ANNE CASE - Princeton University.pdfVIP

DOES ELECTORAL ACCOUNTABILITY AFFECT ECONOMIC POLICY CHOICES? EVIDENCE FROM GUBERNATORIAL TERM LIMITS* BESLEYAND ANNE CASE TIMOTHY This paper analyzes the behavior of U. S. governors from 1950 to 1986 to investigate a reputation-building model of political behavior. We argue that differences in the behavior of governors who face a binding term limit and those who are able to run again provides a source of variation in discount rates that can be used to test a political agency model. We find evidence that taxes, spending, and other policy instruments respond to a binding term limit if a Democrat is in office. The result is a fiscal cycle in term-limit states, which lowers state income when the term limit binds. I. INTRODUCTION The desire to maintain a reputation is often thought to be the mechanism that keeps politicians in check. Officials who care to run again for office must act sufficiently often in the voters interest to merit reelection. While models based on this idea have become increasingly popular in the formal political agency litera- ture, little is known about their practical relevance. U. S. states provide a natural testing ground for such models, for in almost half of all U. S. states governors at some point face a binding term limit, beyond which political reputation becomes less important. This paper analyzes the behavior of U. S. governors from 1950 to 1986 and provides empirical support for the reputation-building model. The literature on principal-agent models of politics is now quite extens