Fiscal consequences of budget baselines

Governments have two main choices for a budgetary baseline procedure: the dollars spent the year before, or the level of services that those dollars bought which is labelled a "current services" baseline. This paper analyzes the effects of different baselines on fiscal policy. first by developing a conceptual framework and then by examining American state data to compare government spending patterns under alternative baseline rules. Controlling for a host of institutional, economic, and demographic factors, we estimate that a current services baseline rule raises the annual growth rate in state spending by half a percentage point. (C) 1998 Elsevier Science S.A.