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Late Budgets

Author

Listed:
  • Asger L. Andersen

    (Department of Economics, University of Copenhagen)

  • David Dreyer Lassen

    (Department of Economics, University of Copenhagen)

  • Lasse Holbøll Westh Nielsen

    (Department of Economics, University of Copenhagen)

Abstract

The budget forms the legal basis of government spending. If a budget is not in place at the beginning of the fiscal year, planning as well as current spending are jeopardized and government shutdown may result. This paper develops a continuous-time war-of-attrition model of budgeting in a presidential style-democracy to explain the duration of budget negotiations. We build our model around budget baselines as reference points for loss averse negotiators. We derive three testable hypotheses: there are more late budgets, and they are more late, when fiscal circumstances change; when such changes are negative rather than positive; and when there is divided government. We test the hypotheses of the model using a unique data set of late budgets for US state governments, based on dates of budget approval collected from news reports and a survey of state budget o¢ cers for the period 1988-2007. For this period, we find 23 % of budgets to be late. The results provide strong support for the hypotheses of the model.

Suggested Citation

  • Asger L. Andersen & David Dreyer Lassen & Lasse Holbøll Westh Nielsen, 2010. "Late Budgets," EPRU Working Paper Series 2010-04, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  • Handle: RePEc:kud:epruwp:10-04
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    References listed on IDEAS

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    Cited by:

    1. Bernecker, Andreas, 2016. "Divided we reform? Evidence from US welfare policies," Journal of Public Economics, Elsevier, vol. 142(C), pages 24-38.
    2. Shoag, Daniel & Veuger, Stan, 2016. "Uncertainty and the geography of the great recession," Journal of Monetary Economics, Elsevier, vol. 84(C), pages 84-93.
    3. Niklas Potrafke, 2017. "Government Ideology and Economic Policy-Making in the United States," CESifo Working Paper Series 6444, CESifo Group Munich.
    4. Andersen, Asger Lau & Lassen, David Dreyer & Nielsen, Lasse Holbøll Westh, 2014. "The impact of late budgets on state government borrowing costs," Journal of Public Economics, Elsevier, vol. 109(C), pages 27-35.
    5. Andreas Bernecker, 2014. "Divided We Reform? Evidence from US Welfare Policies," CESifo Working Paper Series 4564, CESifo Group Munich.
    6. Asger Lau Andersen & David Dreyer Lassen & Lasse Holbøll Westh Nielsen, 2010. "The Impact of Fiscal Governance on Bond Markets: Evidence from Late Budgets and State Government Borrowing Costs," EPRU Working Paper Series 2010-11, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.

    More about this item

    Keywords

    government budgeting; state government; presidential democracies; political economy; late budgets; fiscal stalemate; war of attrition;

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • H83 - Public Economics - - Miscellaneous Issues - - - Public Administration

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