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

Published online by Cambridge University Press:  03 November 2016

PETER T. CALCAGNO  and
EDWARD J. LÓPEZ
PETER T. CALCAGNO*
Affiliation:
College of Charleston, Charleston, SCUSA
EDWARD J. LÓPEZ*
Affiliation:
Western Carolina University, Cullowhee, NCUSA
*
*Email: calcagnop@cofc.edu
**Email: ejlopez@wcu.edu
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Abstract

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.

Type
Research Article
Information
Journal of Institutional Economics , Volume 13 , Issue 1: Douglass C. North Memorial Issue , March 2017 , pp. 211 - 242
Copyright
Copyright © Millennium Economics Ltd 2016 

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