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Municipal revenue over-budgeting: a dynamic analysis of its determinants

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  • Susana Jorge
  • Pedro Cerqueira
  • Sofia Furtado

Abstract

This paper investigates which factors affect revenue over-budgeting in the local government, considering budgetary, political, and institutional determinants. It applies dynamic panels analysis to data from Portuguese municipalities between 2005 and 2017. Regarding budgetary arrangements, over-budgeting has implications for several years, taking up to three years to dissipate. The difference between budgeted revenues and the ones collected in the previous year is a good predictor that revenue is overestimated. The ratio of own-source over total revenue is directly related with over-budgeting; however, this effect comes from the municipality’s wealth. About political factors, municipal Executives with political majorities and in electoral years are more prone to over-budget; however, ideology does not seem to be important. As for institutional arrangements, participation in any debt restructuring program is inversely related to over-budgeting, while excessive debt does not seem to play any role. Overall, the only mechanism which reduces over-budgeting misbehavior is external control.

Suggested Citation

  • Susana Jorge & Pedro Cerqueira & Sofia Furtado, 2023. "Municipal revenue over-budgeting: a dynamic analysis of its determinants," Local Government Studies, Taylor & Francis Journals, vol. 49(3), pages 644-675, May.
    • Handle: RePEc:taf:flgsxx:v:49:y:2023:i:3:p:644-675
    DOI: 10.1080/03003930.2021.2025359
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