Budget ratcheting and agency problem.

摘要

This study investigates the relationship between revenue budget ratcheting in the top 50 US cities and the severity of agency issues. We use the incidence of two primary city governance characteristics, city governance structure and the winning margin in mayoral elections, to construct a "Mayor Power" index as a proxy for the level of empowerment granted to the mayors of the top 50 metropolitan city governments during the period from 2003 to 2009. This study finds evidence of revenue budget ratcheting for the top 50 US cities. In particular, we find that a positive revenue budget variance is associated with an increase in the future revenue budget, while a negative revenue budget variance is statistically not associated with the future revenue budget. Furthermore, this study shows that budget ratcheting occurs when agency problems are more severe.