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Late Budgets

Asger L. Andersen, David Lassen () and Lasse Holbøll Westh Nielsen
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Asger L. Andersen: Department of Economics, University of Copenhagen
Lasse Holbøll Westh Nielsen: Department of Economics, University of Copenhagen

No 2010-04, EPRU Working Paper Series from Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics

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.

Keywords: government budgeting; state government; presidential democracies; political economy; late budgets; fiscal stalemate; war of attrition (search for similar items in EconPapers)
JEL-codes: D72 H11 H72 H83 (search for similar items in EconPapers)
Date: 2010-04
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