Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/82098
Authors: 
Andersen, Asger L.
Dreyer Lassen, David
Holbøll Westh Nielsen, Lasse
Year of Publication: 
2010
Series/Report no.: 
EPRU Working Paper Series 2010-04
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.
Subjects: 
government budgeting
state government
presidential democracies
political economy
late budgets
fiscal stalemate
war of attrition
JEL: 
D72
H11
H72
H83
Document Type: 
Working Paper

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