Discussion Paper Series 2012-E-5

Seniority, Term Limits, and Government Spending: Theory and Evidence from the United States

Yasushi Asako, Tetsuya Matsubayashi, Michiko Ueda

What are the fiscal consequences of legislative term limits? To answer this question, we first study how the average seniority of a legislature affects government spending. We develop a legislative bargaining model that predicts a U-shaped relationship between average seniority and spending: the amount of government spending decreases as the average seniority of the legislature increases from low to moderate, while it increases as the average seniority increases from moderate to high. Our 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 in average seniority in the legislature has little impact on government expenditures because average seniority remains moderate. In contrast, the adoption of term limits that dramatically reduces average seniority of the legislature will increase the amount of government spending because average seniority changes from moderate to low. We test the predicted relationship between seniority, term limits, and government spending using panel data for US state legislatures between 1980 and 2004.

Keywords: Legislative Term Limits; Seniority; Legislative Bargaining; Fiscal Spending

Views expressed in the paper are those of the authors and do not necessarily reflect those of the Bank of Japan or Institute for Monetary and Economic Studies.

Copyright © 2012 Bank of Japan All Rights Reserved.

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