Top-Down Budgeting,Fiscal Stress and Budgeting Theory

Abstract

Recent budgeting literature argues that many governments budget in a top-down manner, especially under fiscal stress, and that incremental budgeting theory is accurate only for bottom-up budgeting procedures when resources are plentiful. However, few studies systematically compare changes under different conditions to assess their claims. This study addresses this problem by testing a model that contains both managerial and incremental indicators of behavior. The model is estimated using pooled, cross-sectional, time-series analysis under four different environmental conditions: fiscal austerity/top-down budgeting, fiscal austerity/bottom-up budgeting, fiscal prosperity/top-down budgeting and fiscal prosperity/bottom-up budgeting. The results indicate that incremental decision making may still operate under austerity and top-down budgeting, but that more detailed decision making criteria are also important under these conditions. Furthermore, agencies seem less sensitive to fiscal conditions than upper-level officials, while agencies are more sensitive to organizational procedures.