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Flexible Budgeting in the Public Sector: The Impact of Disasters, Terrorist Attacks and Wars on Government Expenditures

PFM, Vol. 11 No. 2, (2011)

Government responses to shocks, such as natural disasters, terrorist attacks and wars have consequences for budgets at the US federal and state levels. This article explores the impacts of major shocks on budget expenditures, and the long term implications of government resource allocations. The data include budget expenditures for the federal government and all 50 states from 1972-2008, as well as other economic and social demographic variables. Using a pooled time series cross-sectional design with panel corrected standard errors, we find that significant shocks, such as the 9/11 terrorist attacks, have triggered shifts in government spending priorities, and resulted in the decentralization of fiscal responsibility. Our findings illuminate the interplay between major shocks and budget practices, and begin to describe how flexible budgeting could more evenly distribute fiscal responsibility for public safety in the wake of disasters, terrorist attacks and wars.

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