Explaining State Budget Punctuations: Policy Transparency,Political Institutions,and Electoral Incentives

What factors cause policies experiencing long periods of stability to be interrupted occationally by a short period of large changes? This study argues that electoral incentives might influence the search, supply, and processing of information on constituency issues, as well as the associated cognitive or institutional frictions, and thus determine the presence and variation of punctuated policies. This article develops and evaluates this claim within a systemic framework consisting of policy transparency, political institutions, and electoral incentives. For the purpose of identifying policy punctuations, this research uses the Generalized Pareto Distribution in the Extreme Value Theory. This study analyzes budget spending data collected from FY 1988 to FY 2008 for all 50 American states. This study finds that greater policy transparency is associated with larger spending stability. By contrast, greater gubernatorial competition is more likely to produce extreme spending changes. Electoral incentives shaped by public preference and political term limits have a profound impact on nonincremental policy changes. The impact of policy transparency is conditional on public preference, while that of electoral competition and legislative professionalism is moderated by political term limits. Particularly, a transparent policy consistent with public preference and legislative professionalism with term limits are more likely to give rise to punctuated policies, while gubernatorial (legislative) competition leads to less punctuated changes when governors (legislators) are subject to term limits.