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Would a Biennial Federal Budget Save Money?

by Matt Mitchell on October 7, 2011

in Institutions, Tax and Budget

According to news reports, a number of members of Congress are urging the “Super Committee” to recommend that the Federal Government move to a two-year budget cycle. The advocates of biennial budgeting span the political spectrum and include Democrats Jeanne Shaheen and Kent Conrad as well as Republicans Paul Ryan and Johnny Isakson.

The idea has long been championed by fiscal conservatives who hope that it will reduce spending. But does it? According to Paula Kearns of Michigan State University, the theoretical impact of a biennial budget process is ambiguous. It might decrease spending if it shifts power from the legislature to the executive, but it might increase spending if it makes the spoils of lobbying that much more durable and encourages special interest groups to lobby for largesse. In a 1994 study, Professor Kearns examined the impact of biennial budgeting at the state level. After controlling for other factors, she found that states with a biennial budget process actually spend more per-capita than states with an annual budget process.

This result was confirmed in a 2003 study by Mark Crain (now of Lafayette College, though he was at GMU when he conducted this research). Crain found that, other factors being equal, states with a biennial budget process spend about $120 more than states with an annual budget process (I’ve converted this figure into 2008 dollars).

Of course, per-capita spending isn’t everything. Maybe biennial budgeting leads to more spending, but it is better spending?

For a review of this and other institutions that affect spending, see my new working paper with Mercatus Center Masters Fellow, Nick Tuszynski.

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