Budget Processes: Theory and Experimental Evidence
29 Pages Posted: 26 Sep 2006
Date Written: September 19, 2006
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.
Keywords: budget processes, voting equilibrium, experimental economics
JEL Classification: H61, C92
Suggested Citation: Suggested Citation