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Budget Processes: Theory and Experimental Evidence

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  • Karl-Martin Ehrhart
  • Roy Gardner
  • Jürgen von Hagen
  • Claudia Keser

    ()

Abstract

This paper studies budget processes, both theoretically and experimentally. We give a sufficient condition for top-down and bottom-up budget processes to have the same voting equilibrium. Furthermore, at a voting equilibrium, it is not always true, as often presumed, that a top-down budget process leads to a smaller overall budget than does a bottom-up budget process. To test the implications for budget processes of voting equilibrium theory, we conduct a series of 128 voting experiments using subjects in a behavior laboratory. The experimental evidence from these experiments is well organized by voting equilibrium theory, both at the aggregate level and at the individual subject level. In particular, subjects display considerable evidence of rationality in their proposals and votes. More complete information and fewer spending categories lead to greater predictive success of voting equilibrium theory, and reduce the time needed to reach a budget decision. Ce texte étudie des processus de construction budgétaire, tant d'un point de vue théorique que d'un point de vue de leur application expérimentale. Nous spécifions une condition suffisante afin que l'équilibre électoral soit le même pour les processus de construction budgétaire qu'ils soient de type top-down (par le haut) ou de type bottom-up (par le bas). D'autre part, et bien que cela soit souvent supposé, il n'est pas toujours vrai qu'à l'équilibre électoral un processus de construction budgétaire top-down conduise à un plus faible budget global que ne le ferait un processus budgétaire de type bottom-up. Pour tester les conséquences de la théorie de l'équilibre électoral sur les processus de construction budgétaire, une série de 128 expériences a été conduite en laboratoire. Les résultats de ces expériences sont largement conformes à la théorie de l'équilibre électoral, aussi bien au niveau des donnés agrégés qu'au niveau des résultats individuels. Plus particulièrement, l'étude des résultats révèle que les joueurs font preuve d'une véritable rationalité de décision tant pour formuler leur proposition que pour établir leur stratégie de vote. Enfin, une information plus complète et moins de catégories de dépenses conduisent à un plus grand succès de prévision de la théorie de l'équilibre électoral et réduisent le temps nécessaire pour atteindre une ratification budgétaire.

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Bibliographic Info

Paper provided by CIRANO in its series CIRANO Working Papers with number 99s-33.

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Date of creation: 01 Oct 1999
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Handle: RePEc:cir:cirwor:99s-33

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Keywords: Budget processes; voting equilibrium; experimental economics; Processus de construction budgétaire; équilibre électoral; économie expérimentale;

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References

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  1. Claudia Keser & Roy Gardner, 1999. "Strategic behavior of experienced subjects in a common pool resource game," International Journal of Game Theory, Springer, vol. 28(2), pages 241-252.
  2. Mark Hallerberg & Jürgen von Hagen, 1999. "Electoral Institutions, Cabinet Negotiations, and Budget Deficits in the European Union," NBER Chapters, in: Fiscal Institutions and Fiscal Performance, pages 209-232 National Bureau of Economic Research, Inc.
  3. McKelvey, Richard D, 1979. "General Conditions for Global Intransitivities in Formal Voting Models," Econometrica, Econometric Society, vol. 47(5), pages 1085-1112, September.
  4. Alberto Alesina & Roberto Perotti, 1996. "Budget Deficits and Budget Institutions," IMF Working Papers 96/52, International Monetary Fund.
  5. James M. Poterba & Jürgen von Hagen, 1999. "Introduction to "Fiscal Institutions and Fiscal Performance"," NBER Chapters, in: Fiscal Institutions and Fiscal Performance, pages 1-12 National Bureau of Economic Research, Inc.
  6. James M. Poterba & Jürgen von Hagen, 1999. "Fiscal Institutions and Fiscal Performance," NBER Books, National Bureau of Economic Research, Inc, number pote99-1.
  7. International Monetary Fund, 1996. "Budget Processes and Commitment to Fiscal Discipline," IMF Working Papers 96/78, International Monetary Fund.
  8. Alberto Alesina & Roberto Perotti, 1994. "The Political Economy of Budget Deficits," NBER Working Papers 4637, National Bureau of Economic Research, Inc.
  9. Alberto Alesina & Roberto Perotti, 1995. "The Political Economy of Budget Deficits," IMF Staff Papers, Palgrave Macmillan, vol. 42(1), pages 1-31, March.
  10. Eckel, Catherine & Holt, Charles A, 1989. "Strategic Voting in Agenda-Controlled Committee Experiments," American Economic Review, American Economic Association, vol. 79(4), pages 763-73, September.
  11. Selten, Reinhard, 1991. "Properties of a measure of predictive success," Mathematical Social Sciences, Elsevier, vol. 21(2), pages 153-167, April.
  12. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, December.
  13. Poterba, James M. & von Hagen, Jurgen (ed.), 1999. "Fiscal Institutions and Fiscal Performance," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226676234.
  14. Hallerberg, Mark & von Hagen, Jürgen, 1997. "Electoral Institutions, Cabinet Negotiations, and Budget Deficits within the European Union," CEPR Discussion Papers 1555, C.E.P.R. Discussion Papers.
  15. Marcel Boyer, 1999. "Les Expos, l'OSM, les universités, les hôpitaux : Le coût d'un déficit de 400 000 emplois au Québec = Expos, Montreal Symphony Orchestra, Universities, Hospitals: The Cost of a 400,000-Job Shortf," CIRANO Papers 99c-01, CIRANO.
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Citations

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Cited by:
  1. Grigorescu, Adriana & Balalia, Alina Elena, 2009. "The involvement of the European Union in funding the member states during the economic crisis period," MPRA Paper 25130, University Library of Munich, Germany.
  2. Joachim Wehner, 2006. "Legislative institutions and fiscal policy," LSE Research Online Documents on Economics 25509, London School of Economics and Political Science, LSE Library.
  3. Dietrichson, Jens & Ellegård, Lina Maria, 2011. "Institutions promoting budgetary discipline: evidence from Swedish municipalities," Working Papers 2011:8, Lund University, Department of Economics, revised 20 Dec 2012.
  4. Gebhard Kirchgässner, 2001. "The Effects of Fiscal Institutions on Public Finance: A Survey of the Empirical Evidence," CESifo Working Paper Series 617, CESifo Group Munich.
  5. Sutter, Matthias, 2003. " The Political Economy of Fiscal Policy: An Experimental Study on the Strategic Use of Deficits," Public Choice, Springer, vol. 116(3-4), pages 313-32, September.
  6. Dharmapala, Dhammika, 2006. "The Congressional budget process, aggregate spending, and statutory budget rules," Journal of Public Economics, Elsevier, vol. 90(1-2), pages 119-141, January.

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