Are governmental expenditures also sticky? Evidence from the operating expenditures of public schools

Tsing Zai C. Wu, Chaur Shiuh Young, Chun Chan Yu, Hsiao Tang Hsu

Research output: Contribution to journalArticlepeer-review

Abstract

Existing research on cost stickiness focuses primarily on for-profit companies. This study investigates cost behaviour in the public sector, a new setting that deserves more research attention. Using unique data from public schools in Taiwan, we find that operating expenditures of public schools are sticky. Moreover, the stickiness is more prominent for schools whose principals facing higher enrolment pressure. These results support the public choice theory, suggesting that bureaucratic power may serve as a key driver leading to a sticky cost behaviour for governmental organizations. The government auditors and congressional representatives monitoring governmental budgets should thus notice that bureaucrats might keep the level of expenditures just for their self-interests when demand declines, a manifestation of distortion in allocation of social resources.

Original languageEnglish
Pages (from-to)1763-1776
Number of pages14
JournalApplied Economics
Volume52
Issue number16
DOIs
Publication statusPublished - 2020 Apr 2

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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