The objective of this research was to determine the extent to which municipal budget variances are systematically biased, the direction of any biases, and the relationship between the biases and various political, economic, demographic and organisational factors. We compared budgeted and actual revenues and expenditures for 125 of the largest US cities and developed regression models to explain the magnitude of differences. Our results indicate that budget variances are decidedly conservative and are most significantly influenced by the extent of political competition and the percentage of funding from inter‐governmental grants. Inasmuch as unreliable budget estimates can thwart the political process, our findings suggest that there may be a need for both citizens and legislative bodies to review more thoroughly the budgets presented to them by city officials.
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