The federal balanced budget force: Modeling variations from 1904 to 1996

Past research on budgeting has ignored the existence of an equilibrating tendency in U.S. federal revenues and expenditures through time. Using time series error-correction models, show the existence of such an equilibrating tendency in federal budgets from 1904 to 1996, and theorize that it is due to the balanced-budget norm. Time-varying parameter estimation methods are then used to reveal substantial variations in the strength of the equilibrating tendency through time. Descriptive evidence from the time-varying coefficients shows that the equilibrating tendency in the federal budget was actually weaker prior to the Great Depression and the acceptance of Keynesian principles. There is little evidence of temporal change in the equilibrating tendency in the modern era due to partisanship or divided government. The results suggest that the balanced budget force is important in changing federal revenues and expenditures, but in a manner more complex than has been suggested by facile theories of the past.

The federal balanced budget force: Modeling variations from 1904 to 1996 Academic Article