Abstract
Government budgets are premised on forecasts of revenues and expenditures. These forecasts are subject to both stochastic error and strategic manipulation. Circumstantial evidence in the budgeting literature and in the popular media suggest that government officials routinely bias the forecasts underlying budgets. The research reported here asked three primary questions: To what extent are budget forecasts systematically biased? Why? (Are fiscal and electoral variables systematically related to the magnitude and direction of the biases?) What political and ethical difference do the biases make? From the literature and an analysis of the incentives facing politicians and bureaucrats, we developed hypotheses about budget biases. These hypotheses were tested using time series data for the City of Pittsburgh, Pennsylvania (1941–1983); the City of San Diego, California (1950–1982); and the Pittsburgh (Pennsylvania) School District (1946–1983). In these locales over the periods examined, budgets were systematically pessimistic; revenues were underestimated and expenditures were overestimated. The fiscal and electoral factors hypothesized to account for this pessimism are, however, very mixed in their ability to explain the biases.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References
Anton, Thomas J. (1966). The Politics of State Expenditure in Illinois. Illinois: University of Illinois Press.
Bahl, R., and L. Schroeder (1980). ‘Forecasting Local Government Budgets,’ Metropolitan Studies Program, Occasional Paper No. 38 (Syracuse, NY.: Syracuse University).
Bahl, R., L. Schroeder, and M. Share (1981). ‘Local Government Revenue and Expenditure Forecasting: San Antonio, Texas' Occasional Paper No. 48, Metropolitan Studies Program, Maxwell School of Citizenship and Public Affairs, Syracuse University.
Bahl, R., L. Schroeder, M. Share, and A. Hoffman (1981). ‘Local Government Revenue and Expenditure Forecasting: Washington, D.C.’ Occasional Paper No. 51, Metropolitan Studies Program, Maxwell School of Citizenship and public Affairs, Syracuse University.
Bahl, R., L. Schroeder, and C.K. Zorn (1981a). ‘Local Government Revenue and Expenditure Forecasting: Dallas, Texas,’ Occasional Paper No. 49, Metropolitan Studies Program, Maxwell School of Citizenship and Public Affairs, Syracuse University.
Bahl, R., L. Schroeder, and C.K. Zorn (1981b). ‘Local Government Revenue and Expenditure Forecasting: New York,’ Occasional Paper No. 50, Metropolitan Studies Program, Maxwell School of Citizenship and Public Affairs, Syracuse University.
Burkhead, Jesse (1956). Governmental Budgeting. New York: John Wiley and Sons, Inc.
Caiden, Naomi and Aaron Wildavsky (1974). Planning and Budgeting in Poor Countries. New York: John Wiley and Sons, Inc.
Campbell, John C. (1977). Contemporary Japanese Budget Politics. Berkeley: University of California Press.
Cassidy, Glenn, Mark S. Kamlet, and Daniel S. Nagin (1989). ‘ An Empirical Examination of Bias in Revenue Forecasts by State Governments, ’ International Journal of Forecasting, forthcoming.
Chapman, Jeffrey I. (1982). ‘Fiscal Stress and Budgetary Activity.’ Public Budgeting and Finance. 2: 83–95.
Conn, Mary (Ed.) (1982). Congressional Quarterly Almanac - 1982. Washington, D.C.: Congressional Quarterly.
Cohn, Mary (Ed.) (1985). Congressional Quarterly Almanac - 1985. Washington, D.C.: Congressional Quarterly.
Cyert, Richard, James, March an William Starbuck (1961). ‘Two Experiments on Bias and Conflict in Organizational Estimation.’ Management Science 8: 254–264.
Feenberg, Daniel R., William Gentry, David Gilroy, Harvey S. Rosen (1988). ‘Testing the Rationality of State Revenue Forecasts,’ Working Paper No. 2628, National Bureau of Economic Research, Inc.
Gerwin, Donald (1969). Budgeting Public Funds: The Decision Process in an Urban School District. Wisconsin: The University of Wisconsin Press.
Goodin, Robert E. (1980). Manipulatory Politics. New Haven: Yale University Press.
Greider, William (1981). ‘The Education of David Stockman.’ The Atlantic Monthly 248 (6): 27–55.
Haider, Donald H. (1976). ‘Fiscal Scarcity: A New Urban Perspective’ L.H. Masotti and Robert L. Lineberry (Eds.) The New Urban Politics. Cambridge, MA: Ballinger Publishing Company.
Hayes, John R. (1981). The Complete Problem Solver. Philadelphia, PA.: The Franklin Institute Press.
Larkey, Patrick D. (1979). Evaluating Programs: The Impact of General Revenue Sharing on Municipal Government. Princeton: University Press.
Larkey, Patrick D. and Smith, Richard A. (1984). ‘The Misrepresentation of Information in Governmental Budgeting.’ In Advances in Information Processing in Organizations. L.S. Sproull and P.D. Larkey (Eds.). New York: JAI Press.
Larkey, Patrick D. and Smith, Richard A. (1987). ‘The Importance of Problem Definitions to Solutions for Public Policies and Government Budgets,’ Department of Social and Decision Sciences Working Paper, Carnegie-Mellon University.
Makridakis, Spyros and Steven C. Wheelwright (1978). Forecasting: Methods and Applications. New York: John Wiley & Sons.
Meltsner, Arnold J. (1971). The Politics of City Revenue. Berkeley: University of California Press.
Pantaleoni, Maffeo (1883). ‘Contribution to the Theory of the Distribution of Public Expenditure.’ In Classics in the Theory of Public Finance. Richard A. Musgrave and Alan T. Peacock (Eds.). New York: MacMilliam Company, 1958.
Raiffa, H. (1982). The Art and Science of Negotiation, Cambridge: Harvard University Press.
Smith, Richard A. (1984). ‘Advocacy, Interpretation, and Influence in the U.S. Congress.’ American Political Science Review 78: 44–63.
Sundelson, J. Wilner (1935). ‘Budgetary Principles,’ Political Science Quarterly 50: 237–263.
Texas (1985). Biennial Revenue Estimate: 1986–87. Report from Bob Bullock, Comptroller of Public Accounts to the 69the Texas State Legislature, processed, January 7, 1985.
Tedeschi, J.T. and M. Reiss (1981). ‘Verbal Strategies in Impression Management.’ In The Psychology of Ordinary Explanations of Social Behavior, Charles Antaki, (Ed.). London: Academic Press.
Turnbull, A.B. (1967). Politics in the Budgetary Process: The Case of Georgia. Ph.D. Dissertation, University of Virginia, Charlottesville.
White, Leonard D. (1951). The Jeffersonians: A Study in Administrative History, 1801–1829. New York: The MacMilliam Co.
Author information
Authors and Affiliations
Additional information
This research was supported in part by a grant from the National Science Foundation (SES 8420267). We are indebted to Garry Brewer, Robyn Dawes, Richard Fenno, Joseph Kadane, Mark Kamlet, William Riker and Lee Sproull for their helpful comments on earlier versions of this paper.
Rights and permissions
About this article
Cite this article
Larkey, P.D., Smith, R.A. Bias in the formulation of local government budget problems. Policy Sci 22, 123–166 (1989). https://doi.org/10.1007/BF00141382
Issue Date:
DOI: https://doi.org/10.1007/BF00141382