TY - JOUR
T1 - Informal norms as a bridge between formal rules and outcomes of government financial operations
T2 - Evidence from state balanced budget requirements
AU - Hou, Yilin
AU - Smith, Daniel L.
PY - 2010
Y1 - 2010
N2 - Both formal rules and informal norms guide government operations; formal rules often function through informal norms. Balanced budget requirements (BBRs) are formal rules, but they are implemented via the intermediary of informal norms - interpretation of BBRs by state officials. This article examines the fiscal implications of informal norms that govern budgetary balance. We propose that informal norms have substantive implications in policy making and implementation. To test the proposition, we obtain state self-reported, time-varying data on balanced budget provisions as observations of informal norms, compare them against formal, codified balanced budget requirements from recent research to identify gaps between rules and norms, and decompose the gaps using two categories - "interpretations" and "reverse interpretations" of formal balanced budget requirements. We then conduct probit estimation to obtain the effects of informal norms as well as the interpretations and reverse interpretations on two measures of budgetary balance. Results show that informal norms do affect outcomes of government financial operations; the two-step decomposition of the gaps between formal rules and informal norms provides further information on the locus of these effects. The article identifies the interpretation of formal rules as a new research area, thus contributing to the budgetary institutions and policy implementation literatures.
AB - Both formal rules and informal norms guide government operations; formal rules often function through informal norms. Balanced budget requirements (BBRs) are formal rules, but they are implemented via the intermediary of informal norms - interpretation of BBRs by state officials. This article examines the fiscal implications of informal norms that govern budgetary balance. We propose that informal norms have substantive implications in policy making and implementation. To test the proposition, we obtain state self-reported, time-varying data on balanced budget provisions as observations of informal norms, compare them against formal, codified balanced budget requirements from recent research to identify gaps between rules and norms, and decompose the gaps using two categories - "interpretations" and "reverse interpretations" of formal balanced budget requirements. We then conduct probit estimation to obtain the effects of informal norms as well as the interpretations and reverse interpretations on two measures of budgetary balance. Results show that informal norms do affect outcomes of government financial operations; the two-step decomposition of the gaps between formal rules and informal norms provides further information on the locus of these effects. The article identifies the interpretation of formal rules as a new research area, thus contributing to the budgetary institutions and policy implementation literatures.
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U2 - 10.1093/jopart/mup026
DO - 10.1093/jopart/mup026
M3 - Article
AN - SCOPUS:77954418306
SN - 1053-1858
VL - 20
SP - 655
EP - 678
JO - Journal of Public Administration Research and Theory
JF - Journal of Public Administration Research and Theory
IS - 3
ER -