Punctuated Budgets and Governors’ Institutional Powers

State budgets are flexible: In the same year, some budget categories dramatically rise or fall, whereas others closely follow the previous year’s appropriation. Public policy scholars label a budget that contains mainly small scale changes interspersed with dramatic fluctuations as punctuated. This research seeks to identify the determinants of these punctuated budgets in the American states. What causes both incremental and large scale budgetary change? We argue that a governor’s agenda setting and veto powers increase the extent to which state budgets are punctuated. First, institutionally strong governors can dominate budgetary agendas but are subject to heightened information costs. Second, strong governors can also block legislative alternatives, but thereby induce transactions costs that hinder fiscal policy adjustments. The article analyzes these institutional constraints at the American state level using maximum likelihood estimation on panel data from 1983 to 1999. We make two contributions to the study of American public policy. First, we offer a broad empirical analysis of the causes of punctuated change. Second, we present a method by which to measure punctuated distributions over time. This method can be applied to other areas of public policy research.