Informal norms trump formal constraints: the evolution of fiscal policy institutions in the United States

Two shifts of informal rules occurred in the decades around the turn of the 20th century that continue to shape U.S. fiscal policy outcomes. Spending norms in the electorate shifted to expand the scope of the government budget to promote economic security and macroeconomic stability. Simultaneously,...

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Bibliographic Details
Published inJournal of institutional economics Vol. 13; no. 1; pp. 211 - 242
Main Authors CALCAGNO, PETER T., LÓPEZ, EDWARD J.
Format Journal Article
LanguageEnglish
Published Cambridge, UK Cambridge University Press 01.03.2017
Subjects
20th century
Budget deficits
Economic development
Economic theory
Emergencies
Federal budget
Fiscal policy
GDP
Government spending
Gross Domestic Product
Incentives
Macroeconomics
Norms
Political economy
Politics
Studies
Taxation
Voters
United States > US
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Summary:Two shifts of informal rules occurred in the decades around the turn of the 20th century that continue to shape U.S. fiscal policy outcomes. Spending norms in the electorate shifted to expand the scope of the government budget to promote economic security and macroeconomic stability. Simultaneously, norms for elected office shifted to careerism. Both norms were later codified into formal rules as legislation creating entitlement programs, macroeconomic responsibility, and organizational changes to the fiscal policy process. This institutional evolution increased demand for federal expenditures while creating budgetary commons, thus imparting strong motivations to spend through deficit finance in normal times. Despite the last four decades of legislative attempts to constrain spending relative to taxes, the informal norms have trumped the formal constraints. While the empirical literature on deficits has examined the constraining effects of informal rules, this paper offers a novel treatment of shifting norms as having expansionary effects on deficits.
ISSN:1744-1374
1744-1382
DOI:10.1017/S1744137416000321