Late Budgets

Research output: Working paperResearch


  • Wp-10-04

    Final published version, 698 KB, PDF document

The budget forms the legal basis of government spending. If a budget is not in place at the beginning of the fiscal year, planning as well as current spending are jeopardized and government shutdown may result. This paper develops a continuous-time war-of-attrition model of budgeting in a presidential style-democracy to explain the duration of budget
negotiations. We build our model around budget baselines as reference points for loss averse negotiators. We derive three testable hypotheses: there are more late budgets, and they are more late, when fiscal circumstances change; when such changes are negative rather than positive; and when there is divided government. We test the hypotheses of the model using a unique data set of late budgets for US state governments, based on dates of budget approval collected from news reports and a survey of state budget o¢ cers for the period 1988-2007. For this period, we find 23 % of budgets to be late. The results provide strong support for the hypotheses of the model.
Original languageEnglish
PublisherDepartment of Economics, University of Copenhagen
Number of pages26
Publication statusPublished - 2010

    Research areas

  • Faculty of Social Sciences - government budgeting, state government, presidential democracies, political economy, fiscal stalemate, war of attrition

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