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Andersen, Asger L.
Dreyer Lassen, David
Holbøll Westh Nielsen, Lasse
Year of Publication: 
Series/Report no.: 
EPRU Working Paper Series 2010-04
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.
government budgeting
state government
presidential democracies
political economy
late budgets
fiscal stalemate
war of attrition
Document Type: 
Working Paper

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