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Late Budgets

  • 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)

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.

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Paper provided by Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics in its series EPRU Working Paper Series with number 2010-04.

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Length: 26 pages
Date of creation: Apr 2010
Date of revision:
Handle: RePEc:kud:epruwp:10-04
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  1. Martin Forster & Andrew M. Jones, . "The role of tobacco taxes in starting and quitting smoking," Discussion Papers 00/51, Department of Economics, University of York.
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