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Do governments crowd out governments? Evidence from a natural experiment

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  • Baumann, Stuart
  • Klymak, Margaryta

Abstract

Many governments operate budgets that expire at the end of the fiscal year and rush to spend large amounts at this time. The scale and breadth of this heightened spending raises the possibility of government departments crowding out each other at the year-end while competing with one another for limited suppliers. This may exacerbate the extent of year-end spending spikes. We investigate this possibility using expenditures of all overseas embassies and offices of the UK. We leverage a unique setting where embassies share the UK fiscal year for their budgeting but operate in countries with varying fiscal years. Our results show that: (1) in every country embassies spend more at the UK fiscal year-end than in the average month; (2) the extent of this extra spending is greater in countries that have a fiscal year that overlaps with the UK; (3) embassies spend more at the end of the fiscal years of local firms.

Suggested Citation

  • Baumann, Stuart & Klymak, Margaryta, 2024. "Do governments crowd out governments? Evidence from a natural experiment," European Economic Review, Elsevier, vol. 168(C).
    • Handle: RePEc:eee:eecrev:v:168:y:2024:i:c:s0014292124001326
    DOI: 10.1016/j.euroecorev.2024.104803
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    References listed on IDEAS

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    1. Chen, Xing & Zhang, Peng & Zhang, Ping & Zhuge, Andong, 2024. "The enduring trauma: How officials' childhood famine experiences affect year-end spending surge," Journal of Development Economics, Elsevier, vol. 171(C).

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    More about this item

    Keywords

    Government spending; Embassies; Fiscal year-end;
    All these keywords.

    JEL classification:

    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems

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