Abstract

http://ssrn.com/abstract=1075610
 
 

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Budget Adjustments in Response to Spending Variances: Evidence of Ratcheting of Local Government Expenditures


Tanya Lee


Robert Morris University

Elizabeth Plummer


Texas Christian University


Journal of Management Accounting Research, Forthcoming

Abstract:     
This paper examines the degree to which government administrators incorporate prior year spending variances into current year budgets. Government administrators have incentives to increase their budgets, and constraints on government spending are weaker than those found in the private sector. Therefore, we expect budget increases associated with prior year government overspending (actual exceeds budget) to be larger than decreases associated with underspending of the same amount. This differential response is called ratcheting. We examine budgets for 1,034 Texas school districts (1995 through 2002), and find budget ratcheting in operating expenditures and the subcategories of instructional and non instructional expenditures. Ratcheting is most pronounced for non instructional expenditures. We also find that budget ratcheting is more pronounced when controls on government spending are likely to be weaker. Specifically, budget ratcheting is more pronounced for school districts that operate in a less competitive environment and for districts that have less voter influence.

Keywords: budget ratcheting, budget variance, school expenditures, public sector, incentives

JEL Classification: M40, M41, M46, H72, H52, I22, M48

Accepted Paper Series


Not Available For Download

Date posted: December 17, 2007  

Suggested Citation

Lee, Tanya and Plummer, Elizabeth, Budget Adjustments in Response to Spending Variances: Evidence of Ratcheting of Local Government Expenditures. Journal of Management Accounting Research, Forthcoming. Available at SSRN: http://ssrn.com/abstract=1075610

Contact Information

Tanya Lee
Robert Morris University ( email )
Moon Township, PA 15108
United States
Elizabeth Plummer (Contact Author)
Texas Christian University ( email )
Fort Worth, TX 76129
United States
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