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Ineffective fiscal rules? The effect of public sector accounting standards on budgets, efficiency, and accountability


International organizations have encouraged national governments to switch from traditional cash-based to business-like accrual accounting, on the presumption that long-run benefits may outweigh substantial implementation and operating costs. We use a quasi-experimental setting to evaluate whether changing public sector accounting standards is justified. Some local governments in the German federal state of Bavaria introduced accrual accounting while others retained cash-based accounting. Difference-in-differences and event-study results do not show that (capital) expenditures, public debt, voter turnout, or government efficiency developed differently after changes in accounting standards. Operating costs of administration, however, increase under accrual accounting.

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Fig. 1

Source: Deloitte (2015), PwC (2015), OECD and IFAC (2017), IFAC and CIPFA (2018). Notes: The map reports the current public-sector accounting standard (cash or accrual) at the national government level around the world as of 2018. The map also indicates countries which are in a transition from cash-based to a full accrual-based reporting system or have plans to do so in the next years

Fig. 2

Source: see Lueder (2001, p. 37). Notes: The figure shows a simplified three-component accounting system

Fig. 3
Fig. 4

Notes: Dots represent point estimates from event study estimations, bars are 90% confidence intervals (equivalent to *p < 0.1). − 1 on the x-axis is the base category and denotes 1 year before the introduction of accrual accounting; 1 denotes the first year of implementing accrual accounting

Fig. 5

Notes: Dots represent point estimates from event study estimations, bars are 90% confidence intervals (equivalent to *p < 0.1). − 1 on the x-axis is the base category and denotes 1 year before the introduction of accrual accounting; 1 denotes the first year of implementing accrual accounting. Technical efficiency multiplied by 100


  1. The European Commission proposes a harmonized accrual accounting regime (EPSAS) for all EU member states assuming that “[t]he appropriateness of the accruals principle is indisputable” (European Commission 2013, p. 5). The underlying assumption is that harmonized public accrual accounting among the EU members may strengthen confidence in the financial stability in the European Union and facilitates fiscal surveillance in order to avoid future sovereign debt crisis (Council of the European Union 2011; European Commission 2013). A majority of EU member states have already implemented full accrual-based public accounting or plan to do so. See also Cavanagh et al. (2016) for the IMF, and OECD and IFAC (2017) for the OECD.

  2. The cost estimates refer to the introduction of the accrual-based EPSAS.

  3. Lampe et al. (2015) use a stochastic frontier approach and show that accrual accounting comes with initial gains in cost efficiency which diminish rapidly. In their setting of German local governments in the state of North Rhine-Westphalia in the very short run over 3 years, however, accrual accounting overlaps with further policy changes such as withdrawing fiscal supervision (see Christofzik and Kessing 2018).

  4. Asatryan et al. (2018) use a similar strategy.

  5. Tóth (2019) shows that fiscal rules successfully bind the implementing but also later governments.

  6. The difference of the two accounting systems and its components becomes more obvious by discussing some examples: If an investment good (e.g., non-financial asset) is acquired (a), cash-based accounting reports only the cash outflow in the period when cash is paid out. Under accrual accounting, however, the balance sheet reports the decrease of liquid financial assets (or an increase of debt (liabilities)) at the price of the purchased asset, but also the increase of non-financial assets at the value of the purchased asset. Equity capital, however, does not change if the price equals the value of the purchased asset. This is similar if non-financial assets such as land properties, buildings or machineries are sold (b). While cash-based accounting only reports the cash inflow in the cash flow statement, the balance sheet of accrual accounting takes the rise of liquid assets on the one hand and the decline in the value of non-financial assets on the other hand into account. In the case of borrowing (c), cash-based accounting records again only the inflow of cash in the cash flow statement. Accrual accounting, by contrast, reports the rise of liquid assets (due to cash inflow) and the rise of liabilities. Moreover, future interest costs of the credit are considered in the income statement as expenses (d). The income statement also reports an increase in expenses when capital assets depreciate (e). If the balance of revenues and expenses is negative, equity capital is decreasing in the balance sheet. Table A1 in the appendix gives a numerical example.

  7. Traditional cash-based accounting statements do not systematically report the use of resources.

  8. See, Delmenhorster Kurier, June 30, 2019, “Misstrauische Politiker”,,-misstrauische-politiker-_arid,1841297.html.

  9. See, e.g., Boehme et al. (2013), and, November 29, 2018, ”Aus dem Stadtrat notiert - Rückumstellung des Rechnungswesens”,

  10. The states of Bavaria and Thuringia allow local governments to choose between accrual-based and traditional cash-based accounting. In the state of Schleswig-Holstein, local governments can select full accrual-based or cash-based accounting extended by some accrual accounting elements. All county governments have switched to accrual accounting. In Thuringia, four out of 23 county governments changed accounting standards.

  11. See Pressestelle Landratsamt Bamberg, December 21, 2004, ”Landkreis Bamberg entscheidet sich für die Doppik; Einstimmiger Grundsatzbeschluss des Kreistages”,,1633.10.1&ModID=7&FID=1633.5682.1; Stadt Regensburg, March 21/29, 2007, ”Vorlage - VO/07/2212/020: Umstellung der Haushaltsführung von der kameralistischen auf die doppelte kommunale Buchführung”,; Pressestelle Landkreis Würzburg, March 04, 2009, ”Landkreis führt Doppik ein”,,2680.5.1&ModID=7&FID=1755.226.1&NavID=2680.127&La=1; Die Augsburger Zeitung, November 13, 2009, ”Pro Augsburg gibt Doppik nicht auf”,; Landkreis Schwandorf, March 14, 2011, ”11. Sitzung des Kreisausschusses: Bericht zum neuen Kommunalen Haushaltsrecht”,

  12. Data on accounting standards are from the Bavarian State Parliament (Bayerischer Landtag, Drs. 17/12909). All other data are obtained from the State Statistical Office of Bavaria.

  13. The collection of these expenditure categories are hardly affected by different accounting standards. Spurious statistical effects can be ruled out to large extent. By contrast, other expenditure categories as well as total expenditures might be biased by artificial statistical breaks. The State Statistical Office of Bavaria confirmed that our fiscal performance categories are comparable between cash-based and accrual-based accounting statements.

  14. Investment expenditures include the acquisition of land, facilities, and movable fixed assets as well as construction expenditures. This article also discusses whether accrual accounting affects local government decisions on total construction expenditure and investments in schools or county streets in the results section.

  15. County governments do not raise own taxes. County rates, however, do not occur in consolidated city counties.

  16. Data on debt of all local government enterprises is not available as panel dataset in the period of observation.

  17. DEA report the maximum efficiency score of 1. We multiply all efficiency scores by 100 and report the maximum efficiency score as 100.

  18. The calculations of the efficiency scores are based on an input-orientation rather than an output-oriented model. This approach seems appropriate because county governments have large autonomy in expenditure decisions (input factors). A decrease or increase in input factors such as expenditures (given a constant output) seems always possible (for example by raising the county rate to finance expenditures), whereas a change in the amount of outputs and services is not always feasible. Scholars have shown that per capita public expenditures or legislative tasks may depend on the size and density of the population (see, for example, Breunig and Rocaboy 2008; Holcombe and Williams 2008; Egger and Koethenbuerger 2010). Efficiency scores therefore rely on the assumption of variable returns to scale. Inferences of our results hardly change by using constant returns to scale.

  19. The SPD was the second largest party in the Bavarian parliament during our period of observation and clearly preferred mandatory accrual accounting in the parliamentary debate. We have also tested the SPD seat share and SPD head of government as additional control variables. Inferences regarding our main results, however, do not change.

  20. Inferences hardly change when we include Regierungsbezirk-year fixed effects instead of year fixed effects (see, Table A13 for cox and probit regressions with district-year fixed effects; Table A14 for the difference-in-differences results and figures A1 and A2 for the event-study results in the Online Appendix). Bavarian counties are grouped into seven administrative districts (Regierungsbezirke); interactions among heads of government could be somewhat more intense within districts. We found a statistically significant effect of CSU heads of government on the cox regression but not in the probit estimations.

  21. Table A4 in the Online Appendix shows the results for our control variables.

  22. Results do not change for time lags of voter turnout. See Table A6 in the Online Appendix.

  23. The Online Appendix provide full event study regression outputs in Tables A7 and A8.

  24. Another minor exception is that road accidents are somewhat lower some 2 years before switching (10% significance level). See Table A8 in the Online Appendix.

  25. We do not use unemployment rates as a baseline control variable because we do not observe unemployment rates for the entire period under investigation. Dummies for flood events are one in 2002 and 2013 when a county government declared emergency alert, and zero otherwise.

  26. Anecdotal evidence reports, for example, that introducing accrual accounting gave rise to transition problems including inconsistent and contradictory statements, time consuming asset valuation, costly expenses for new IT systems, staff training and external support services. Some counties even report severe mistakes in creating the new balance sheets and asset valuations due to overloading of the staff. After 2012 no further counties decided to implement accrual accounting in Bavaria. Quite the contrary, some local governments are discussing to switch back to cash-based accounting. See Süddeutsche Zeitung, April 9, 2015, ”Sinn und Unsinn Befürworter der Doppik”,; Süddeutsche Zeitung, April 9, 2015, ”Pioniere mit Problemen”,; Nordbayerischer Kurier, May 16, 2015, ”Bayreuth: Buchhalterpanne kostet 1,5 Millionen Euro”,;, November 29, 2018, ”Aus dem Stadtrat notiert - Rückumstellung des Rechnungswesens”,

  27. We show that observable pre-reform characteristics do not predict the selection into treatment (see Sect. 4.2). Even more, event study results corroborate that the common trends assumption in our outcome variables hold (see Sect. 5.2). One may still argue that unobserved characteristics such as the motivation of the head of the county administration and the members of the county council influence the selection into treatment decision and the government performance as more motivated decision makers more likely use the new management tools provided by accrual-based financial statements. The benefits of accrual accounting might then be overestimated due to an omitted variable bias. Our results, however, do not show significant effects which suggest that unobserved characteristics cause an overestimation of benefits. Thus, our results do not seem to be biased.


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We thank István Ábel, Stephan Brand, Silvia Coretti, Gunther Friedl, Carolin Fritzsche, Arye L. Hillman, Christian Hofmann, Florian Keppeler, Niklas Potrafke, Christian Raffer, William F. Shughart II, Johannes Steinbrecher, Jan-Egbert Sturm, three anonymous referees, and the participants of the Annual Yearbook of Public Finances Workshop in Leipzig (2018), the Meeting of the European Public Choice Society (EPCS) in Jerusalem (2019), the Meeting of the Doctoral conference of the Hanns-Seidel-Foundation in the Banz monastery (2019), and the 28th Silvaplana Workshop of Political Economy in Pontresina (2019) for helpful comments. We are grateful for helpful data support by the State Statistical Office of Bavaria. Florian Dorn gratefully acknowledges funding by the Hanns-Seidel-Foundation, and Felix Roesel gratefully acknowledges funding by the German Research Foundation (DFG Grant Number 400857762).

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Dorn, F., Gaebler, S. & Roesel, F. Ineffective fiscal rules? The effect of public sector accounting standards on budgets, efficiency, and accountability. Public Choice 186, 387–412 (2021).

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  • Fiscal rules
  • Public accounting
  • Budget transparency
  • Sustainability
  • Government efficiency
  • Accountability
  • Local government

JEL Classification

  • D02
  • D73
  • H72
  • H83