Late Budgets

EPRU Working Paper No. 2010-04

50 Pages Posted: 5 May 2010

See all articles by Asger Lau Andersen

Asger Lau Andersen

University of Copenhagen - Department of Economics

David Dreyer Lassen

University of Copenhagen - Department of Economics

Lasse Holbøll Westh Nielsen

University of Copenhagen - Department of Economics

Date Written: May 3, 2010

Abstract

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 is 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 officers 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.

Keywords: government budgeting, state government, presidential democracies, political economy, late budgets, fiscal stalemate, war of attrition

JEL Classification: D72, H11, H72, H83

Suggested Citation

Andersen, Asger Lau and Lassen, David Dreyer and Nielsen, Lasse Holbøll Westh, Late Budgets (May 3, 2010). EPRU Working Paper No. 2010-04 , Available at SSRN: https://ssrn.com/abstract=1599437 or http://dx.doi.org/10.2139/ssrn.1599437

Asger Lau Andersen

University of Copenhagen - Department of Economics ( email )

Øster Farimagsgade 5
Bygning 26
1353 Copenhagen K.
Denmark

David Dreyer Lassen (Contact Author)

University of Copenhagen - Department of Economics ( email )

Studiestraede 6
DK 1455 Copenhagen
Denmark
+45 3532 4412 (Phone)
+45 3532 4444 (Fax)

Lasse Holbøll Westh Nielsen

University of Copenhagen - Department of Economics ( email )

Øster Farimagsgade 5
Bygning 26
1353 Copenhagen K.
Denmark

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
97
Abstract Views
1,896
rank
365,707
PlumX Metrics