Leandro M. De Magalhães and Lucas Ferrero
Should the Federal government and the remaining American states adopt the line item veto? What are its effects? We use regression discontinuity design to claim that in states with the line item veto,divided government has a causal negative effect on the tax level. By investigating a panel of 38 American states from 1960 to 2006, we estimate a significant discontinuous increase of 13% in the tax level as the party affiliated with the Governor in the state Legislature switches from being the minority party to being the majority. In the nine states that have block veto, we find no significant discontinuity in the tax level. We also find little evidence to suggest that the partisan identity of the majority party in the Legislature has a causal effect on the state tax level.
