Budgetary Procedures and Deficits in Norwegian Local Governments

This paper provides an empirical analysis of the connection between budgetary procedures and deficits in Norwegian local governments. We argue that centralized budgetary procedures have an advantage in overcoming common-pool resource problems in the decision-making process and will lead to lower deficits. This hypothesis is tested on a panel data set of Norwegian local governments. The results add to the existing evidence of a negative connection between deficits and the degree of centralization of the budget process. Special emphasis is put on the problem with potential biased estimates resulting from endogeneity of the budgetary variables.