Local Government Budgeting: The Econometric Comparison of Political and Bureaucratic Models

22 Pages Posted: 9 Jun 2004 Last revised: 28 Jul 2010

See all articles by Martin S. Feldstein

Martin S. Feldstein

National Bureau of Economic Research (NBER) (deceased); Harvard University (deceased)

Daniel J. Frisch

U.S. Department of Treasury

Date Written: October 1977

Abstract

The current paper presents a method of deciding the question of whether any given stage in the budget process is an example of the "political" or the "bureaucratic" model. We then use it to study local government spending on education. The basis for our method is the important difference between the effect of intergovernmental aid that is implied by the political budget model and by the bureaucratic budget model. According to the bureaucratic model, the effect of inter-governmental aid on each category of educational input (e.g., teachers' salaries, books, etc.) depends only on the change in total educational spending induced by the aid and not on the type of aid that causes the change in spending. In contrast, the political budget model implies that the overall expenditure increase is the result of separate decisions on each of the expenditure categories and that the changes in these expenditure categories will depend on the form of the intergovernmental aid. Our method of exploiting this difference is presented in detail below.

Suggested Citation

Feldstein, Martin S. and Frisch, Daniel J., Local Government Budgeting: The Econometric Comparison of Political and Bureaucratic Models (October 1977). NBER Working Paper No. w0207, Available at SSRN: https://ssrn.com/abstract=228060

Martin S. Feldstein (Contact Author)

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Harvard University (deceased)

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Daniel J. Frisch

U.S. Department of Treasury

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