Testing Rival Decision–Making Theories on Budget Outputs: Theories and Comparative Evidence

This study demonstrates the link between the degree of economic rationality and budgetary decision–making outputs for Canada, the United Kingdom, and the United States. Three empirical models are derived with low, intermediate, and high degrees of economic rationality, namely, "garbage can," incrementalism, and rational choice budgeting, respectively. The methods used are time series analyses on real disaggregated national government budget outputs for the post–World War II period for Canada, the United States, and the United Kingdom. There was some support found for budgetary incrementalism, and the most consistent support for rational choice budgeting. There was no support for garbage can budgeting.     

A Review of: “Organizational Knowledge. The Texture of Workplace Learning by Silvia Gherardi with the Collaboration of Davide Nicolini”

ABSTRACT

This article provides new empirical evidence about Flemish municipal councilors’ use of financial information in the yearly budget debate. Since councilors generally do not handle information according to “standard use models,” we adopt an innovative method of data collection by scrutinizing their speech for the presence of financial information during the budget debate in Flemish municipalities. The incorporation of financial information in councilors’ contributions to the debate is conceptualized as a particular form of observable use of financial information. We quantitatively assess the presence of both budgetary and accrual financial information using a scoring technique taken from the management accounting literature. Additionally, we analyze whether various political and financial circumstances affect politicians’ mentioning of this information in their deliberations. Our results reveal a strong prevalence of budgetary information in councilors’ speech. This is influenced by both political conditions and the financial position of the municipality.     

Incrementalism in Appropriations: Small Aggregation,Big Changes

U.S. federal budget dynamics, as a major attribute of the legislative and bureaucratic decision‐making processes, increasingly calls into question the scholarly focus on incrementalism. What constitutes a “small” change is largely unspecified in previous research that has also been unable to assess incrementalism across multiple levels of aggregation. Using a unique budgetary database, this article analyzes whether budgetary changes are in fact “small” at different levels of aggregation. Surprisingly, a low proportion of changes are small by any logical standard. During most years, more than one‐fifth of budgetary changes are greater than 50 percent, and nearly half are more than 10 percent. The level of aggregation is also important for assessing whether political variables influence incrementalism. A salient finding: change in party control reflects greater influence within micro‐level budget decisions, while divided government manifests more impact on aggregate‐level budget decisions.     

An Integrated Theory of Budgetary Politics and Some Empirical Tests: The U.S. National Budget, 1791–2010

We develop a general theory of budgetary politics and examine its implications on a new data set on U.S. government expenditures from 1791 to 2010. We draw on three major approaches to budgeting: decision‐making theories, primarily incrementalism and serial processing; policy process models; and path dependency. We show that the incrementalist budget model is recursive and that its solution is exponential growth, and isolate three periods in which it operates in pure form. The equilibrium periods are separated by critical junctures, associated with wars or economic collapse. We assess policy process dynamics by examining the deviations within equilibrium periods. We offer three takeaways: (1) exponential incrementalism is fundamental to a theory of budgeting; (2) disjoint shifts in the level of exponential incrementalism are caused only by critical moments; (3) temporally localized dynamics cause bends in the exponential path, longer returns to the path within budgetary eras, and annual punctuations in budget changes.     

Exploring Explanations of State Agency Budgets: Institutional Budget Actors or Exogenous Environment?

Budgetary incrementalism argues that three institutional actors—agencies, executive budget offices, and legislative committees—dominate budget outcomes. The complexity and interdependency of public programs expands this expectation to include the influence of exogenous budget factors. Findings from a survey of state agency heads reveal that budget environments do influence state agency budget outcomes. However, the institutional budgetary participants, especially governors and legislatures, envisioned in classical incrementalism retain their principal and primary influence on state agency budgets. A significant departure from classical incrementalism is that agencies are not as influential as previously depicted.     

省会城市预算过程中党政首长的作用与影响——基于三个省会城市的研究

以我国三个省会城市为例来试图回答这样一个问题:在省会城市预算过程中,党政首长究竟发挥着怎样的作用,他们是如何影响着预算过程和预算改革的?研究发现,这三个省会城市预算改革后,预算权力结构并未从根本上改变.其核心仍然是市委书记和市长,他们仍然是地方预算过程中实际的财政资源申请的审批者或最终资源配置者.这主要体现在,预算改革后,市委领导下的"行政预算"体制的继续,市政府领导高层预算分配权力的相对集中,和市长对部门关系以及部门利益的决定性影响.研究还指出,要准确地表达地方党政首长在预算过程中的权力,需要将其放在一种"关系"的维度来具体化.此外,对预算环境的讨论也是必要的,尤其是政治环境,对于党政首长而言,预算过程中的不确定性通常都是和政治环境相联系的.     

Ideas, Inheritances, and the Dynamics of Budgetary Change

Long the lifeblood of public administration, budgeting in the United States acquired a new importance during the 1980s and 1990s because of the fiscalization of the policy debate. But how much has American national budgeting really changed? This article examines the evolution of federal budgeting over the past half-century, exploring such developments as the massive growth of entitlements, congressional budget reform, and the protracted battle over the budget deficit. It finds that year-to-year changes in budget results have been relatively small even while budgetary rules and procedures have experienced sweeping change. At the same time, the composition of federal spending has undergone a quiet revolution. The traditional concept of budgetary incrementalism offers an incomplete explanation for these dynamics. To make sense of them, the article focuses on two key factors: the impact of policy inheritances, and the role of actors' causal and normative beliefs. These factors shape the ideational and material context within which boundedly rational actors negotiate decisions. The tension between changes in ideas and entrenched budgetary commitments has often served to stimulate institutional reform.     

Analyzing How Local Governments Establish Service Priorities

Resource limitations and increasing citizen expectations are causing decisionmakers to reexamine existing approaches to establishing priorities in the funding of governmental services. Using local governments as a contextual example, this article investigates the decision making processes used by Texas cities The research seeks to understand the role different budgetary frameworks, i.e., incremental, performance and community values, play in resource allocation. Factors such as the budget sequence, the participants and the reference sources are considered to better understand local budget deliberations. This research indicates that a mixed or hybrid framework (any combination of the incremental, performance and community values approaches) dominates decision making in Texas cities. That is, most cities attempt to incorporate the politicalness of incrementalism, the results orientation of the performance framework, and the utility maximization desired under the community values framework. Results from this research indicate that Texas cities are moving away from a single framework orientation as a rule and are incorporating more rational and participative aspects into their budget process. This refutes common wisdom on this topic and suggests a more complicated approach to decision making that emphasizes the injection of more objective performance-related data, as well as the subjective perceptions of non-traditionally dominant participant groups.     

Budgeting and Rebudgeting in Local Governments: Siamese Twins?

The literature on budgeting in the public sector has traditionally focused on the annual budgetary process. Much less attention has been paid to rebudgeting—that is, what governments do to revise and update their budgets during the fiscal year. Because of its potentially large impact on appropriations, rebudgeting seemingly deserves more attention than it has been granted so far. This article uses data from a sample of Italian municipalities to test hypotheses on the main drivers of budget revisions. According to the results, rebudgeting is strongly affected by the degree of incrementalism in the initial budgeting process, as well as by several internal and external determinants, such as political variables, organizational features, financial conditions, and the local socioeconomic environment.     

Legislative Professionalism and Budget Punctuations in State Government Sub‐Functional Expenditures

Contrary to budgetary incrementalism, disproportionate information processing theory revealed that budget outcomes show episodic but dramatic changes as well as stabilized ones. A relatively less explored question is why such budget punctuations occur. Disproportionate information processing theory suggests that decision‐makers' lack of information processing capacity and institutional frictions are the main reasons for budget punctuations. Empirical analyses imply that governmental expenditures are exposed to varying levels of available information and institutional frictions and patterns of budget punctuations differ across the different types of governmental expenditures. The findings in this paper reveal that whether enhanced staff assistance for individual legislators can increase or decrease budget punctuations highly depend on the programmatic and institutional nature of state government sub‐functional expenditures.     

Priority-based budgeting: An honest broker among municipal functions?

Implemented in over 200 local governments, priority-based budgeting (PBB) reflects a contemporary attempt to systematically determine and implement desired budgetary reallocation. PBB proponents claim it is highly effective in prioritizing governmental programs and aligning budgetary allocation to priorities. However, core municipal functions such as public safety and public works are often impervious to budgetary shocks. Can PBB overcome this to better align budgetary allocations with organizational priorities? This study examines 32 municipal PBB implementers with difference-in-differences analysis; finding a varied effect upon municipal functions that casts doubt on its ability to fully reallocate budgetary resources from low- to high-priority programs.     

Is the Tax Collection Effort an Indicator of the Financial Condition of Spanish Municipalities?

ABSTRACT

The financial crisis beginning in 2007 drastically affected the financial resources of different governmental organizations, causing critical imbalances between resources and expenditure needs. This study aims to analyze whether the municipal tax collection effort in Spain could be an indicator of the financial condition of these institutions. As a preliminary step, a new methodology is used to assess their financial condition. We test tax collection effort as an indicator on a sample of more than 5,000 Spanish municipalities with fewer than 75,000 inhabitants. Results confirm that the budgetary solvency dimension is associated with the tax collection effort for all municipalities studied. Furthermore, in municipalities with populations of fewer than 5,000 inhabitants, the level of the tax collection effort is indicative of most of the financial condition dimensions.     

Incremental and cyclical developments in public expenditure in West Germany

Abstract. The 'cyclical' effect covered in this paper deals with the development of public expenditure in West Germany in combination with the timing of elections. The underlying hypotheses on the cyclical development of certain expenditures are based on the 'New Political Economy' literature. This approach is then contrasted with the theory of budgetary incrementalism, an alternative mode of explanation of public sector growth. The data are tested to see whether a cyclical or linear model is more appropriate for describing public expenditure developments.     

Multi-Year Forecasting and Municipal Budgeting

The "black hole" of budget theory still is, after 50 years, budget preparation—much effort goes in but little seems to come out. This article examines municipal forecasting as a means of reforming this first stage of the budgetary process. Drawing on evidence from a cross-sectional study, we find that forecasting is likely to be within the cognitive limits of most municipal budget directors Moreover, budgetary forecasting can be structured to reflect previous and current political concerns.     

Explaining Interest Rates in Local Government Borrowing

ABSTRACT

This article analyzes the usefulness of municipal accounting information in the interest rates agreed on by financial institutions in the European context. Most of the literature has focused on municipal bonds, mainly in the United States. Our core contribution is to study which factors determine the interest rates on bank loans to municipalities. This framework is different, since there is neither a secondary bond market nor credit ratings, and therefore information asymmetry is higher. Specifically, we investigate if municipal financial indicators and financial reports’ quality have an influence on interest rates paid by Spanish municipalities in the period 2001–2008. Our empirical results indicate that, in general, the municipal financial situation exerts an influence on the credit policy of lenders, who charge a risk premium to those municipalities with less current surplus, which is an indicator of the municipality's saving ability. Furthermore, there is also some inertia in the municipal annual interest rate (year t ? 1 interest determines around 27% of year t interest). Other findings indicate that high levels of expenditures and debt per capita increase the interest cost of municipal borrowing. Finally, municipalities that disclose full detailed financial reports pay less interest because information asymmetry and transaction costs are lower.     

Decentralising France: How the socialists discovered pluralism

Reversing European trends toward the consolidation of local government and the imposition of stronger central controls, the French Socialist government undertook a major legislative programme to restructure French local government. This experience is examined in the light of early Socialist commitment to municipal Socialism and their return to power in the Fifth Republic using their local power base. Local reform posed three dilemmas for the Socialists: how to avoid turning local government over to the extreme left or autogestion forces in the party; how to meet the economic demands of locally elected officials without losing fiscal and financial control; and how to enhance decision‐making powers of elected officials at all three levels (municipal, département and region) while also achieving managerial reforms. Their pluralist response was a pragmatic blend of political, economic and budgetary concessions. Participation was enhanced by vigorous efforts to revive voluntary associations; contractual arrangements were devised to put economic programmes for unemployed youth, the elderly and industrial assistance more squarely in local hands; and new managerial methods were coupled to limits on prefectoral powers and budgetary initiatives. The reforms offer important new opportunities for the growth of local government while confirming Socialist dedication to republican ideals.     

Surplus Expenditures: A Case Study of Colorado

In this study the concept of surplus expenditures is introduced, and a theory of surplus expenditures is explored. The study examines the disposition of surplus revenues that emerged from the imposition of a binding tax and spending limit in Colorado. The study concludes that the accumulation of surplus revenue requires a major overhaul of budgetary reporting and decision making to reflect the impact of binding tax and spending limits on the budgetary process. The reporting recommendations are designed to make the budget more transparent and provide both taxpayers and legislators the information they need to make more rational decisions. The policy recommendations explore options for a more efficient and equitable disposition of surplus revenue.     

Taxing and Spending in Japan and Texas: Whose Cities Are Better Off?

This article compares the budgetary positions of Japanese and Texas cities. The appropriate criteria for evaluating municipal taxing and spending policies are identified. After determining which municipalities are better off, recommendations are offered for improving the less well-off cities' budgetary position.     

Fiscal Federalism, European Stability Pact, and Municipal Investment Finance: A Microdata Analysis of Spanish Municipalities

In countries where subnational governments control a large partof the public finances, the central government's ability tokeep its commitment to the European Union's Stability and GrowthPact can be a difficult matter. European rules demand that theoverall budget be balanced over the medium term; applying thisrule at subcentral level may unduly reduce capital outlays andlocal budgetary autonomy. This article examines the possibleimpact of budgetary stability legislation on the capital expenditureof Spanish municipalities. The empirical findings suggest thatthe new budgetary stability framework will oblige municipalitiesto (i) limit their investments, (ii) raise the tax burden, or(iii) reduce the funds allocated to other budget items. We believethe Spanish municipal experience is generalizable to other federalcountries in Europe that are facing hard budget constraintsand high earmarked grants.