Budget adjustments in response to spending variances: Evidence of ratcheting of local government expenditures

This paper examines the degree to which government administrators incorporate prior year spending variances into current year budgets. Government administrators have incentives to increase their budgets, and constraints on government spending are weaker than those found in the private sector. Theref...

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Bibliographic Details
Published in:Journal of management accounting research 2007, Vol.19 (1), p.137-167
Main Authors: Lee, Tanya M, Plummer, Elizabeth
Format: Article
Language:English
Subjects:
Academic achievement
Anreiz
Budgeting
Budgets
Education
Expenditures
Finanzierung
Government spending
Hypotheses
Incentives
Kommunalverwaltung
Local government
Management accounting
Overspending
Private sector
Public schools
Public sector
School boards
School districts
School principals
School superintendents
Schule
Studies
Tax rates
Texas
USA
Voters
Öffentliche Ausgaben
Ökonomie
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Summary:This paper examines the degree to which government administrators incorporate prior year spending variances into current year budgets. Government administrators have incentives to increase their budgets, and constraints on government spending are weaker than those found in the private sector. Therefore, we expect budget increases associated with prior year government overspending (actual exceeds budget) to be larger than decreases associated with underspending of the same amount. This differential response is called ratcheting. We examine budgets for 1,034 Texas school districts (1995 through 2002), and find budget ratcheting in operating expenditures and the subcategories of instructional and non-instructional expenditures. Ratcheting is most pronounced for non-instructional expenditures. We also find that budget ratcheting is more pronounced when controls on government spending are likely to be weaker. Specifically, budget ratcheting is more pronounced for school districts that operate in a less competitive environment and for districts that have less voter influence.
ISSN:1049-2127
1558-8033
DOI:10.2308/jmar.2007.19.1.137