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Budget Processes: Theory and Experimental Evidence

  • Ehrhart, Karl-Martin

    ()

    (Universitaet Karlsruhe)

  • Gardner, Roy

    (Indiana University and ZEI, University of Bonn)

  • von Hagen, Jürgen

    (University of Bonn, Indiana University, and CEPR)

  • Keser*, Claudia

    (IBM T.J. Watson Research Center, New York)

This paper studies budget processes, both theoretically and experimentally. We give a sufficient condition for top-down and bottom-up budget processes to have the same voting equilibrium. Furthermore, at a voting equilibrium, it is not always true, as often presumed, that a top-down budget process leads to a smaller overall budget than does a bottom-up budget process. To test the implications for budget processes of voting equilibrium theory, we conduct a series of 128 voting experiments using subjects in a behavior laboratory. The experimental evidence from these experiments is well organized by voting equilibrium theory, both at the aggregate level and at the individual subject level. In particular, subjects display considerable evidence of rationality in their proposals and votes. More complete information and fewer spending categories lead to greater predictive success of voting equilibrium theory, and reduce the time needed to reach a budget decision.

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Paper provided by Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim in its series Sonderforschungsbereich 504 Publications with number 04-57.

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Length: 25 pages
Date of creation: 03 Dec 2004
Date of revision:
Handle: RePEc:xrs:sfbmaa:04-57
Note: Financial support from the Deutsche Forschungsgemeinschaft, SFB 504, at the University of Mannheim, is gratefully acknowledged.
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  1. Alberto Alesina & Roberto Perotti, 1994. "The Political Economy of Budget Deficits," NBER Working Papers 4637, National Bureau of Economic Research, Inc.
  2. Keser, C. & Gardner, R., 1994. "Strategic Behavior of Experienced Subjects in a Common Pool Resource Game," Papers 94-009, Indiana - Center for Econometric Model Research.
  3. Selten, Reinhard, 1991. "Properties of a measure of predictive success," Mathematical Social Sciences, Elsevier, vol. 21(2), pages 153-167, April.
  4. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, June.
  5. International Monetary Fund, 1996. "Budget Processes and Commitment to Fiscal Discipline," IMF Working Papers 96/78, International Monetary Fund.
  6. James M. Poterba & Jürgen von Hagen, 1999. "Introduction to "Fiscal Institutions and Fiscal Performance"," NBER Chapters, in: Fiscal Institutions and Fiscal Performance, pages 1-12 National Bureau of Economic Research, Inc.
  7. Alberto Alesina & Roberto Perotti, 1995. "The Political Economy of Budget Deficits," IMF Staff Papers, Palgrave Macmillan, vol. 42(1), pages 1-31, March.
  8. Alberto Alesina & Roberto Perotti, 1996. "Budget Deficits and Budget Institutions," NBER Working Papers 5556, National Bureau of Economic Research, Inc.
  9. Marcel Boyer, 1999. "Les Expos, l'OSM, les universités, les hôpitaux : Le coût d'un déficit de 400 000 emplois au Québec = Expos, Montreal Symphony Orchestra, Universities, Hospitals: The Cost of a 400,000-Job Shortfall i," CIRANO Papers 99c-01, CIRANO.
  10. Eckel, Catherine & Holt, Charles A, 1989. "Strategic Voting in Agenda-Controlled Committee Experiments," American Economic Review, American Economic Association, vol. 79(4), pages 763-73, September.
  11. McKelvey, Richard D, 1979. "General Conditions for Global Intransitivities in Formal Voting Models," Econometrica, Econometric Society, vol. 47(5), pages 1085-1112, September.
  12. Mark Hallerberg & Jurgen von Hagen, 1997. "Electoral Institutions, Cabinet Negotiations, and Budget Deficits in the European Union," NBER Working Papers 6341, National Bureau of Economic Research, Inc.
  13. Poterba, James M. & von Hagen, Jurgen (ed.), 1999. "Fiscal Institutions and Fiscal Performance," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226676234.
  14. James M. Poterba & Jürgen von Hagen, 1999. "Fiscal Institutions and Fiscal Performance," NBER Books, National Bureau of Economic Research, Inc, number pote99-1, December.
  15. Hallerberg, Mark & von Hagen, Jürgen, 1997. "Electoral Institutions, Cabinet Negotiations, and Budget Deficits within the European Union," CEPR Discussion Papers 1555, C.E.P.R. Discussion Papers.
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