Article ID: | iaor20041932 |
Country: | United States |
Volume: | 15 |
Issue: | 3 |
Start Page Number: | 354 |
End Page Number: | 379 |
Publication Date: | Jan 2003 |
Journal: | Journal of Public Budgeting, Accounting and Financial Management |
Authors: | Reddick Christopher G., Hassan Seid Y. |
Keywords: | management, time series & forecasting methods, government, planning, economics |
This paper tests public budgeting as a long-run and short-run process; political decision makers strive to head toward budgetary balance over the long run but are constrained in the short run and follow incremental decision-making. First, the budget equilibrium theory is stated and is used to explain the relationship between revenues and expenditures. Second, the interaction between expenditures and revenues is tested with a vector error correction model for Canada, UK and the US, using annual time series data between 1948 and 2000. The results show that, in the long-run, revenues are the driving force behind the budget in Canada; in the UK expenditures force the budget toward balance. In the short-run, incrementalism occurs in both of these countries. The most interesting finding is for the United States where on-budget revenues and expenditures both push the budget toward balance over the long-run but there is no incrementalism in the process in the short-run. This, of course, is contrary to much of the existing literature.