Party Politics, Governors, and Economic Policy

In this article, we evaluate the role of elections in governors' state tax policy making. Does it matter for state taxes whether the governor is a Democrat or Republican and whether she is eligible for re-election or faces a binding term limit? Using a Regression Discontinuity Design and a panel of U.S. states, we find that the manner in which governors of different parties implement different tax policies turns crucially on the incumbent's eligibility for re-election. Re-electable Democratic governors increase income taxes relative to similarly situated Republicans, yielding divergence between party policy positions. However, governors facing a binding term limit exhibit the reverse policy difference, resulting in a movement of policy back together.