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.
Skip Nav Destination
Article navigation
1 December 2007
Research Article|
January 01 2007
Budget Adjustments in Response to Spending Variances: Evidence of Ratcheting of Local Government Expenditures
Elizabeth Plummer
Elizabeth Plummer
bTexas Christian University
Search for other works by this author on:
Journal of Management Accounting Research (2007) 19 (1): 137–167.
Citation
Tanya M. Lee, Elizabeth Plummer; Budget Adjustments in Response to Spending Variances: Evidence of Ratcheting of Local Government Expenditures. Journal of Management Accounting Research 1 December 2007; 19 (1): 137–167. doi: https://doi.org/10.2308/jmar.2007.19.1.137
Download citation file:
Sign in
Don't already have an account? Register
Client Account
You could not be signed in. Please check your email address / username and password and try again.
Sign in via your Institution
Sign in via your Institution
13
Views
0
Citations