Fiscal reform and governmental efficiency: Hanging tough

Many surveys of taxpayers in the wake of the fiscal reforms of the 1970's have indicated that frustration with the inefficiency and wastefulness of government is a major motive behind their votes for tax and expenditure limitations. There is a strongly held belief that government can do as much as it is currently doing with much less money. There is also a widespread belief that by reducing the dollar resources available to governments, they will be forced to become less wasteful and more efficient. This paper argues that increased efficiency in local government is an unlikely consequence of the fiscal reform movement. Indeed, lessened efficiency is a more probable outcome.We are indebted to Thomas Anton, Peter deLeon and an anonymous referee for comments on an earlier draft. The authors are, of course, solely responsible for all assertions and any remaining errors.     

Bias in the formulation of local government budget problems

Government budgets are premised on forecasts of revenues and expenditures. These forecasts are subject to both stochastic error and strategic manipulation. Circumstantial evidence in the budgeting literature and in the popular media suggest that government officials routinely bias the forecasts underlying budgets. The research reported here asked three primary questions: To what extent are budget forecasts systematically biased? Why? (Are fiscal and electoral variables systematically related to the magnitude and direction of the biases?) What political and ethical difference do the biases make? From the literature and an analysis of the incentives facing politicians and bureaucrats, we developed hypotheses about budget biases. These hypotheses were tested using time series data for the City of Pittsburgh, Pennsylvania (1941–1983); the City of San Diego, California (1950–1982); and the Pittsburgh (Pennsylvania) School District (1946–1983). In these locales over the periods examined, budgets were systematically pessimistic; revenues were underestimated and expenditures were overestimated. The fiscal and electoral factors hypothesized to account for this pessimism are, however, very mixed in their ability to explain the biases.