STATE TAXES AND LEGISLATIVE TURNOVER IN THE UNITED STATES PAVEL A. YAKOVLEV and J. SEBASTIAN LEGUIZAMON Mounting empirical evidence suggests that term limits and, by extension, higher legislative turnover increase the overall size of government and change its spending composition. However, less is known about the turnover’s impact on the composition of tax revenues. This study flls this void by exploiting exogenous variation in term limits and redistricting as instruments for legislative turnover, which is found to be positively associated with most state taxes except for the corporate income tax. We hypothesize that the negative association between legislative turnover and corporate income taxes might be infuenced by a higher propensity of business owners to enter term-limited state legislatures. (JEL H7, H3) I. INTRODUCTION Turnover has been an important topic of discussion among economists and political sci- entists alike. While many regard the rotation of public servants in and out of offce as an important feature of any democratic system, some scholars argue that too much turnover can be costly. Models of optimal tenure highlight that low turnover and long tenures increase incum- bency advantage and, consequently, political entrenchment. Entrenchment reduces account- ability and increases collusion among senior offcials, potentially increasing ineffcient spend- ing through pork legislation (Adams and Kenny 1986; Hibbing 1991; Payne 1991). On the other hand, too much turnover may result in ineffcien- cies due to a greater prevalence of inexperienced policymakers (Adams and Kenny 1986). High turnover and low tenures may also discourage offceholders by weakening reelection possibil- ities and thus reducing electoral accountability. If incumbents perceive their reelection odds are low, they may feel incentivized to shirk and extract rents while in offce. This is consistent with the fnding that incumbents who face high turnover rates may be more inclined to adopt policies that would have little chance of passing Yakovlev: Associate Professor, Department of Economics and Finance, Duquesne University, Pittsburgh, PA 15282, Phone 1-412-396-1908, Fax 412-396-4764, E-mail yakovlevp@duq.edu Leguizamon: Assistant Professor, Economics in the Gordon Ford College of Business, Western Kentucky University, Bowling Green, KY 42101, Phone 1-270-745-3970, Fax 270-745-3190, E-mail j.sebastian.leguizamon@wku.edu through subsequent governments (Alesina and Tabellini 1990). Many of these policies may favor the sectors and industries to which these incumbents expect to return, potentially leading to a misallocation of scarce public resources and greater overall government spending with detrimental consequences for future economic growth (Uppal and Glazer 2015). Although the literature on legislative turnover and government spending is extensive, less attention has been devoted to the turnover’s effect on tax composition. To the best of our knowledge, this study is the frst to examine the impact of legislative turnover on the major components of state tax revenues. While Uppal and Glazer (2015) estimate the impact of legisla- tive turnover on state tax revenues, they do not examine its impact on tax revenue composition. This issue is important since offceholders are often incentivized to manipulate fscal policy to satisfy some particular interests (Brender 2003; Drazen and Eslava 2010). In states with high turnover rates, low reelection probabilities may exacerbate such distortions. One challenge in estimating the impact of leg- islative turnover on tax revenues is that turnover may be endogenous. Voters may be less likely to ABBREVIATIONS ALEC: American Legislative Exchange Council BLS: Bureau of Labor Statistics GSP: Gross State Product IV: Instrumental Variable NCSL: National Conference of State Legislature TEL: Tax and Expenditure Limitations TLI: Term Limit Index 518 Economic Inquiry (ISSN 0095-2583) Vol. 58, No. 1, January 2020, 518–535 doi:10.1111/ecin.12851 Online Early publication October 17, 2019 © 2019 Western Economic Association International