ABSTRACT Although balanced budget rules are widely used throughout the world, there is considerable debate on whether and how they impact fiscal outcomes. Existing research shows that states with strict balanced budget rules address deficits by raising taxes and curbing expenditures. However, little is known about whether politicians can meet budget rules by shifting resources inter-temporally or by transferring revenues from funds not subject to balanced budget rules into funds that are required to meet a balanced budget. We show that, in addition to increasing taxes and cutting expenditures, states with strict balanced budget rules sell public assets and transfer resources across government funds to close the budget shortfall. Our findings suggest that current budget deficits not only influence the current-period taxpayers, but also impact future taxpayers and other funds within the government. The results complement existing research by expanding our understanding of the effects of balanced budget restrictions on politicians' fiscal actions.
ABSTRACT This paper examines whether the identity of the individual audit partners provides informational value to capital market participants beyond the value provided by the identity of the audit firms. Using data from Taiwan, where firms are mandated to disclose the names of the engagement partners, we find a positive association between the partner's quality and the client firm's earnings response coefficient. We also find a positive market reaction when a firm replaces a lower quality partner with a higher quality one. Moreover, we find evidence that firms audited by higher quality partners experience smaller initial public offering (IPO) underpricing and are able to obtain better debt contract terms. Overall, these results suggest that the quality of engagement partners matters to capital market participants.