Accrual Accounting and the Local Government Budget - A Matching Evaluation

Abstract

The transition from cash to accrual accounting is said to change a government's perception of its budget quite fundamentally. Although an exorbitant number of governments have reformed the mode of accounting at high costs in past years, reliable empirical evidence of consequences on their financial situation and decision-making is still scarce. In this paper, budget variables are analysed which are hypothesized to react to the reform: investment expenditure and revenue from asset sales. Microdata from 1,100 local governments in the German state of Baden-Wurttemberg over the period 2005-2016 is exploited with different matching techniques combined with the conditional DiD estimator. Results imply a robust effect on municipal investment behaviour; evidence for sales revenue remains weak. The findings corroborate recent empirical results. For the first time a common understanding of the budgetary effects of the accrual accounting reform seems to be emerging.