This paper studies how a politician's term length affects public finances. I test whether the gradual increase from two- to four-year terms for American governors affects state finances using a rich state-year panel stretching back almost a century. The results show that adopting four-year terms decreases annual expenditures and revenues by 6 %. The effect of the reform is present immediately after voters approve the ballot measure, when the last two-year-term governor is still in office, which suggests that the mechanism at work is stronger re-election incentives for the incumbent. The effect is larger among electorally "at risk" governors. Democratic governors respond to longer terms by increasing public employment instead of decreasing expenditures.
Term Length U.S. Governors Political Agency Elections