An incremental budgeting model of local public expenditure setting in the presence of piecewise linear budget constraints

This Paper develops and tests an incremental budgeting model of local government expenditure decisions using data on British local government. The model introduces two distinctive feautures into the incremental budegeting literature. Firstly, it takes explicit account of the availability of an independent source of revenue for jurisdictions (in this example, a local property tax). And secondly it shows how it is possible to develop satisfactory emperical models when budget constraints are only piecewise linear. The model is shown to perform well, both in explaining within-year variability in budgeting decisions, and in predicting subsequent budgets under revised budget constraints.