Term Limits , Seniority , and Government Spending : Theory and Evidence from the U . S . States ∗

What is a fiscal consequence of legislative term limits? We develop a legislative bargaining model that predicts a u-shaped relationship between the level of seniority within a legislature and government spending. The size of government spending decreases as the level of seniority increases from low tomoderate, while it increases as the level of seniority increases from moderate to high. The model also predicts that the equilibrium level of seniority is moderate. Building on these predictions, we hypothesize that the adoption of term limits resulting in a small reduction of seniority has little impact on government expenditures because the level of seniority remains to bemoderate. In contrast, the adoption of term limits that dramatically reduces the level of seniority will increase the size of government spending because the level of seniority changes from moderate to low. We test these hypotheses drawn from the model using the panel data of the American states between 1980 and 2004. ∗We wish to thank Hirokazu Ishise for his valuable comments. Views expressed in this paper are those of the authors and do not necessarily reflect the official views of the Bank of Japan. †Bank of Japan ([email protected]). ‡University of North Texas ([email protected]). §Syracuse University ([email protected]).