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Sequencing and the Size of the Budget: A Reconsideration

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  • Hallerberg, Mark
  • von Hagen, Jürgen

Abstract

Conventional wisdom argues that spending levels and, by extension, budget deficits will be higher for governments using bottom-up instead of top-down methods of budgeting. Ferejohn and Krehbiel (1987) appear to debunk this argument. They indicate that the superiority of one method over the other in lowering the size of the budget depends on the distribution of the spending preferences of the policy-makers. These authors do not consider two problems that top-down budgeting is intended to solve: policy-makers who value a large budget as a goal in itself; and policy-makers who do not consider fully the cost of the spending programmes they support, which leads to the ‘common pool problem’. We add such players to a framework meant to parallel Ferejohn and Krehbiel’s model. We find that, contrary to conventional wisdom, bottom-up produces smaller budgets than top-down if players seek to maximize dimensions of spending relevant to their constituents and if their ideal budgets are close to one another. At the same time, the order of the vote per se does not reduce the size of the budget when there exists a common pool problem. An agenda setter can provide the necessary coordination to force politicians to consider the full tax implications of their spending decisions. Supporters of top-down budgeting may therefore confuse added centralization with the order of the vote on the budget. The second part of this paper provides a reinterpretation of the US budgeting experience in the post-war era based on this insight.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1589.

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Date of creation: Mar 1997
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Handle: RePEc:cpr:ceprdp:1589

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Related research

Keywords: Coordination Games; Government Budget; Public Finance;

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Cited by:
  1. António Afonso & Peter Claeys & Ricardo M. Sousa, 2009. "Fiscal Regime Shifts in Portugal," NIPE Working Papers 25/2009, NIPE - Universidade do Minho.
  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. Perotti, Roberto, 1998. " The Political Economy of Fiscal Consolidations," Scandinavian Journal of Economics, Wiley Blackwell, vol. 100(1), pages 367-94, March.
  4. Perotti, Roberto & Kontopoulos, Yianos, 2002. "Fragmented fiscal policy," Journal of Public Economics, Elsevier, vol. 86(2), pages 191-222, November.
  5. 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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