19 country is in a state of war and the ratio of the adult to youth populations, are examined
to determine their effect on budget outcomes Davis et al 1974. Dezhbakhsh et al 2003 find that factors that lead to political vulnerabilities such as presidential elections,
persistent and large deficits as well as Democratic party control over the political process and changes in the party in control of the executive or legislative branches lead to
changes in the regularity of budget changes and the closeness of these changes to current base levels of the budget.
As mentioned, this theory and the description of the relationships between budget actors are based on the federal budget process in the U.S. Wildavsky 1964; Davis et al
1966; Dempster and Wildavsky 1979 and Davis et al 1974. Much of the empirical work that followed also focused on the U.S. federal budget process Wanat 1974; Tucker 1982;
Padgett 1980; Gist 1982; and Dezhbakhsh et al 2003, although not exclusively. In applying the incremental theory of budgeting to sub national units of analysis, scholars
have taken the core elements of the theory and contextualized them to sub national budget actors and budget processes, and tested for indications of the incremental method
Lewis 1984; Lewis 1988; Downs and Rocke 1984; Rickards 1984; Hackbart and Ramsey 2004.
2.2.2 Application of Theory to Situations of Fiscal Stress
Incrementalism offers several insights into how states facing fiscal stress will react. In early and subsequent research, Davis et al 1966 and Dempster and Wildavsky
1979 used the terms increment and decrement to describe changes to the budget base. Researchers concerned with budgeting in periods of fiscal stress adapted the term
decrement to decrementalism Lewis 1984; Bartle 1996. The term signifies an incremental budget process – with examination of the base, concern for stakeholder
harmony, and limited consideration of alternatives – only instead of increases to the budget base there are decreases to the budget base.
20 Taking the broad tenets of incrementalism, we expect states to retain the
regularity of their budget processes, for the roles of budget actors to be preserved, and for the base to be the focus of conversation. Using these ideas, several researchers have
sought to pinpoint the use of the incremental method within the tactics of local governments facing fiscal stress as well Rickards 1984; Lewis 1984; Downs and Rocke
1984. Their findings are not unanimous, but through their operationalization of incrementalism at different levels of government the types of hypotheses and tests needed
to determine the use of incremental methods is illustrated. They also provide a framework for testing the effectiveness of incremental responses to fiscal stress.
At the municipal level, researchers applying incremental budget theory have found indications of incremental budgeting – operationalized as across-the-board and
opportunistic cuts. Rickards 1984, in an analysis of 105 West German cities over nine years, finds incrementalism more likely in certain fiscal conditions. More populous cities
are more likely to follow incremental budgeting patterns. The author speculates this is due to the larger size of the budget and the increased demands by interest groups that
result in decision-makers relying more on “fair-share” rules. In contrast, a larger tax base is more likely to result in bigger changes to budgets because there is more revenue to start
new programs. This suggests that cities with fewer revenues are more likely to demonstrate incremental budgeting.
Looking at U.S. cities with the strongest and weakest economies between 1964 and 1979, Lewis 1984 found evidence of incremental budgeting or in the case of
economically depressed cities, decremental budgeting. Incremental budgeting was operationalized as similar budget cuts for different city departments, regardless of their
importance to the provision of core city services. The results of this analysis support the incidence of decremental budgeting by cities experiencing revenue declines, with no
obvious strategy or administrative focus on preserving one department’s budget over another’s. A caveat on the application of this study to fiscal stress is that the cities in the
21 sample did not suffer sustained periods of decline. Therefore, Lewis 1984 suggests that
decremental budgeting may not persist after multiple years of serious revenue declines. In another study of U.S. cities, Downs and Rocke 1984 operationalize three
incremental theories of budgetary decision-making: bureaucratic process theory changes are incremental due to bounded rationality and inflexible organizational responses to
change, interest group politics theory changes are incremental to avoid upsetting interest groups, and managerial theory overall budget increases are incremental due to
mandatory spending requirements. While all three theories result in similar incremental outcomes during times of fiscal growth, they result in divergent outcomes in times of
fiscal stress. This study tests how incrementalism in a fiscally stressed setting operates. Downs and Rocke 1984 find budgeting is essentially incremental relatively small
changes year to year and that the fair share principle applies with no consistent departmental winners or losers – although this is not operationalized as across-the-board
cuts. Furthermore, they find that in response to fiscal stress, budget cutting tends to take the path of least resistance e.g. hiring freezes, deferred maintenance. The findings by
Downs and Rocke 1984 mostly concur with those of Lewis 1984. Wildavsky 1986 examined budgeting at the state level and found varying
applications of incremental budgeting. The presence of various structural or in another parlance, institutional factors such as spending formulas, mandatory spending,
earmarked tax revenues and federal grants for specific purposes constrain the choices available to state budgeters. In this analysis, it is not just bounded rationality that prevents
decision-makers from considering all possible options. Rather, the structure of the budget and the budget process restrict comprehensive analysis. Wildavsky 1986 concludes that
the most important factor for state budget decision-makers is revenue adequacy. A typology of budgeting divides states or nations into poor or wealthy with predictable or
unpredictable revenues. Regardless of a state’s wealth, if revenues are unpredictable, a pattern of repetitive budgeting – in which the budget is made and remade throughout the
22 fiscal year – dominates. However, with predictable revenue – even if it is low –
incremental budgeting will be the norm.
2.2.3 Theoretical Implications for State Responses to Fiscal Stress
