Budget Processes: Theory and Experimental Evidence
University of Karlsruhe
Jürgen Von Hagen
University of Bonn - Institute of Economic Policy; Centre for Economic Policy Research (CEPR)
University of Goettingen (Gottingen)
Indiana University Bloomington - Department of Economics; Indiana University Purdue University Indianapolis (IUPUI) - Department of Economics
September 19, 2006
CAEPR Working Paper No. 2006-009
This paper studies budget processes, both theoretically and experimentally. We compare the outcomes of bottom-up and top-down budget processes. It is often presumed that a top-down budget process leads to a smaller overall budget than a bottom-up budget process. Ferejohn and Krehbiel (1987) showed theoretically that this need not be the case. We test experimentally the theoretical predictions of their work. The evidence from these experiments lends strong support to their theory, both at the aggregate and the individual subject level.
Number of Pages in PDF File: 29
Keywords: budget processes, voting equilibrium, experimental economics
JEL Classification: H61, C92
Date posted: September 26, 2006
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