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The paper studies forecasts of real growth rates and budget balances made by official government agencies among 33 countries. In general, the forecasts are found: (i) to have a positive average bias, (ii) to be more biased in booms, and (iii) to be even more biased at the 3-year horizon than at shorter horizons. This over-optimism in official forecasts can help explain excessive budget deficits, especially the failure to run surpluses during periods of high output: if a boom is forecasted to last indefinitely, retrenchment is treated as unnecessary. Many believe that better fiscal policy can be obtained by means of rules such as ceilings for the deficit or, better yet, the structural deficit. But we also find: (iv) countries subject to a budget rule, in the form of euroland's Stability and Growth Pact (SGP), make official forecasts of growth and budget deficits that are even more biased and more correlated with booms than do other countries. This effect may help explain frequent violations of the SGP. The question becomes how to overcome governments' tendency to satisfy fiscal targets by wishful thinking rather than by action. Chile in 2000 created structural budget institutions that may have solved the problem. Independent expert panels, insulated from political pressures, are responsible for estimating the long-run trends that determine whether a given deficit is deemed structural or cyclical. The result is that Chile's official forecasts of growth and the budget have not been overly optimistic, even in booms. Unlike many countries in the North, Chile took advantage of the 2002—7 expansion to run budget surpluses, and so was able to ease in the 2008—9 recession.

The literature on budgeting in the public sector has traditionally focused on the annual budgetary process. Much less attention has been paid to rebudgeting—that is, what governments do to revise and update their budgets during the fiscal year. Because of its potentially large impact on appropriations, rebudgeting seemingly deserves more attention than it has been granted so far. This article uses data from a sample of Italian municipalities to test hypotheses on the main drivers of budget revisions. According to the results, rebudgeting is strongly affected by the degree of incrementalism in the initial budgeting process, as well as by several internal and external determinants, such as political variables, organizational features, financial conditions, and the local socioeconomic environment.

We analyze how budgetary institutions affect government budget deficits in member states of the European Union during 1984-2003 employing new indicators provided by Hallerberg et al. (2009). Using panel fixed effects models, we examine whether the impact of budgetary institutions on budget deficits is conditioned by political fragmentation (i.e., ideological differences among parties in government) and size fragmentation (i.e., the effective number of parties in government or the number of spending ministers). Our results suggest that strong budgetary institutions, no matter whether they are based on delegation to a strong minister of finance or on fiscal contracts, reduce the deficit bias in case of strong ideological fragmentation. In contrast, the impact of budgetary institutions is not conditioned by size fragmentation.

A large body of research has claimed that budget making by multiparty governments constitutes a “common pool resource” (CPR) problem that leads them to engage in higher levels of spending than single-party governments and, further, that this upwards fiscal pressure increases with the number of parties in the coalition. We offer a significant modification of the conventional wisdom. Drawing on recent developments in the literature on coalition governance, as well as research on fiscal institutions, we argue that budgetary rules can mitigate the CPR logic provided that they (1) reduce the influence of individual parties in the budget process and (2) generate endogenous incentives to resist spending demands by coalition partners. Our empirical evaluation, based on spending patterns in 15 European democracies over nearly 40 years, provides clear support for this contention. Restrictive budgetary procedures can eliminate the expansionary fiscal pressures associated with growing coalition size. Our conclusions suggest that there is room for addressing contemporary concerns over the size of the public sector in multiparty democracies through appropriate reforms to fiscal institutions, and they also have implications for debates about the merits of “proportional” and “majoritarian” models of democracy that are, at least in part, characterized by the difference between coalition and single-party governance.

We assess whether bilateral and multilateral donors of foreign aid specialized and coordinated their activities with other donors as agreed in the Paris Declaration of 2005. We account for donor heterogeneity, varying aid priorities and recipient characteristics in order to isolate changes in donor behaviour over time. Recent shifts in aid priorities, such as the rising importance of general budget support, have reduced the fragmentation of aid. Nevertheless, our results reveal that aid fragmentation persisted after the Paris Declaration and coordination among donors has even weakened.

Balanced budget requirements (BBRs) affect all aspects of financial operations.Previous studies relied on characterizations that highlight a constitutional-statutory distinction.Hou and Smith (Public Budgeting & Finance 26(3): 22-45, 2006) instead propose a political-technical construct. This article uses probit estimation, six measures of balance, and long panels to test which framework offers more explanatory power. The findings suggest that BBRs matter to varying degrees. Technical requirements exert bigger effects than political ones, the effects are more obvious on narrower than broader measures of balance and in the later phases of the budget cycle, and the political-technical construct offers more explanatory power than the constitutional-statutory distinction.

Organizations employ various risk-mitigation strategies to cope with the uncertainty in marketing new products. In the motion picture industry, an important strategy is to cast star actors and actresses in movies. The ultimate box-office success, however, depends on multiple stakeholders involved with financing, making, distributing, and watching the movie. In pursuing different goals and interests, the stakeholders may look for different aspects of star power to mitigate their own risk. This paper examines how the influence of stars varies across key stakeholders in the movie market. The results show that, in general, stars have a greater impact on the stakeholders involved in the earlier stages of movie development and exhibition (where the risks are greater) than on those in later stages. Movie project financiers and exhibitors are strongly and directly influenced by star power, but news media and movie audiences are influenced less and only indirectly. Situated at the early stage of the movie \"value chain,\" the financiers are most concerned with stars' past box-office performance. Exhibitors, however, are influenced by the \"match\" between a star's genre participation history and the genre of a specific movie. By contrast, news media and movie audiences are influenced indirectly through the stars' impact on earlier stakeholders and their decisions. The findings shed light on the value of employing star elements in new products, the marketing of stars, and movie promotion strategies.

This paper develops an empirical framework for the problem of soft budgets which is explicitly based on a dynamic commitment problem, i.e., the inability of a supporting organization to commit itself not to extend more resources ex post to a budget-constrained organization than it was prepared to provide ex ante. Swedish local governments are used as a testing ground since the central government distributed a large number of fiscal transfers. The estimated soft-budget effect is economically significant: on average, a local government increases its debt by more than 20 percent by going from a hard to a soft budget constraint.

The budget is an expression of political rather than economic priorities. We confirm this proposition for a group of new and potential members of the European Union, finding that politics dominates. The contemporary practice of democracy can increase budget deficits through not only ideological preferences, but also more fragmented government coalitions and higher voter participation. Long-term structural forces, triggered by societal divisions and representative electoral rules, have more ambiguous implications but also appear to increase budget pressures, as others have also found. However, our most robust, and hopeful, finding is that budget institutions - mechanisms and rules of the budget process - that create checks and balances have significant value in curbing fiscal pressures even when the politics is representative but undisciplined, and when long-term structural forces are unfavourable.

This article investigates the impact of performance, as measured by the OMB performance budgeting initiative called Performance Assessment Rating Tool (PART), on recommendations in the President's budget. In a multivariate analysis using data from the FY 2005 budget, with appropriate controls for the political content of programs, we find that the PART scores have a statistically significant impact on budget decisions within OMB. We find that PART scores have a larger impact on small and medium sized programs than on large programs. We also find that the “results” component of PART scores has a smaller impact on budget decisions than the “program purpose” component, a finding which tends to contradict the goal of performance budgeting to redirect resources to programs that produce results. The relative unimportance of the “results” component may be due to the lack of good outcome measures for most programs in PART.