This paper reviews the evidence on the effectiveness of tax and expenditure limitations, the line-item veto, and balance-budget rules on state spending, taxation, and debt. The evidence shows these budget institutions help to restrain government.
The most effective tax and spending limits are constitutional limits initiated by citizens. A drawback to these limits are they also tend to increase off-budget expenditures. The expenditure reducing line item vetoes are more effective than simple absolute line vetoes. Balanced-budget rules tend to reduce deficits by lowering spending when there are no carry forward provisions.