Double-Entry Bookkeeping in Municipal Finance: A Natural Field Experiment in Public Choice

After 200 years of local autonomy, originated in Baron vom Stein’s Prussian Municipal Statutes of 1808, the issue of local self-government was currently revitalized in political debates and reforms of public sector accounting in Germany. Between 2004 and 2008, eight German states decided on implementation of double-entry bookkeeping in municipal finance to meet further information requirements, whereas other German states decided to proceed or extend cameralistics. In fact, the implementation of double-entry bookkeeping is not just a legal, fiscal accounting, or public finance issue, but also demonstrates some typical public choice phenomena. According to public choice theory, politicians are reluctant to define policy objectives that could allow for performance assessment and seek for external substantiation instead. In the essay, the implementation of double-entry bookkeeping is interpreted as being a natural field experiment. After a short introduction into the recent situation, the three fiscal accounting styles, cameralistics, extended cameralistics, and double-entry bookkeeping, are compared with regard to the question of what the outcome of a public administration actually is. Then, in several exploratory case studies, the effects of the implementation are identified and discussed. The reports hint at distortion effects as a consequence of missing definitions of policy objectives and anticipate dynamic effects.