Panel Paper: On the Emergence and Influence of Fiscal Incentives on Judicial Decision Making: Evidence from Drivers’ License Suspensions in Indiana

Saturday, November 10, 2018
8228 - Lobby Level (Marriott Wardman Park)

*Names in bold indicate Presenter

Sian Mughan, Indiana University

This paper develops a theory of judicial behavior in the presence of fiscal stress. Judges, the chief financial officers of their courthouses, can increase court generated revenues through discretionary fines and fees and/or by altering their sentencing behavior with an eye towards revenue generation. Drawing on the method of selection literature, I argue that fiscal stress reduces judicial independence by strengthening the preferences of influential constituencies, county and city councils, visa-vie revenue generation. The theory is tested using a unique administrative dataset of all traffic infractions filed in the state of Indiana over a seven year period combined with financial data on local government revenue losses due to circuit breaker tax credits. Results indicate fiscal stress is associated with a 2.7 percent increase in average revenue per case. When restricting the sample to municipal courts where the revenue incentive is stronger the estimated effect is seven percent. I also investigate whether sentencing behavior is responsive to fiscal stress, exploiting a change in state law increasing judicial discretion with respect to drivers’ license suspensions. The assumption is suspensions generate revenues at a variety of points in the justice system cycle. Evidence from a difference-in-differences design reveals that drivers’ license suspension rates fell following HEA 1279 and this response was driven by judges working in areas unaffected by fiscal stress. Taken together results suggests that the restriction of fiscal options available to local governments alters judicial behavior, encouraging reliance on criminal justice fines and fees.