Budgeting Behavior: Indonesian Local Government Budget Predictions

Abstract

Objective: The behaviors of overreaction and underreaction exhibited by public sector budget planners have an impact on the disparity between the initial budget set at the beginning of a period and the actual budget realization at the end of the period. This study aims to examine how budget planners in Indonesia predict budgets for local governments, specifically whether there is a difference in the overreaction or underreaction behavior of public sector budget planners among districts and cities in the South Sulawesi Province of Indonesia. Theoretical Framework: This study aims to elucidate the cognitive mechanisms of representativeness bias and the anchoring-adjustment heuristic, which may impact the behavior of individual budget planners in determining budget amounts for future periods and their reliance on past information. Method: This research employs a quantitative approach with a causal and explanatory study design. In this study, the independent variable is the behavior of public sector budget builders, while the accuracy of their predictions for the future budget of the public sector constitutes the dependent variable. The quantitative approach was selected because it aligns with the research's objective of discerning potential misestimations in the behavior of budgeting teams when determining the budgetary allocations for the upcoming year in various patterns or conditions. The research's respondents are the budgeting teams from various districts and cities in the South Sulawesi Province. To test the research subjects, a heuristic of representativeness and anchoring-adjustment is followed when utilizing patterns of revenue realization from previous years (time series). Results and Discussion: This study found that the average Uncertainty in Budget Planner Predictions for Local Governments in each district and city in South Sulawesi, Indonesia, is consistent and does not exhibit significant differences. This research is highly significant as it can provide a valuable contribution to public sector budget planners in Indonesia when establishing budget amounts for the forthcoming period. Research Implications: This study seeks to contribute to advancing research in the realm of public sector budgeting in South Sulawesi, particularly by providing an overview of the occurrence of overreaction and underreaction behaviors among the planners of Local Own-Source Revenue (PAD) budgets in South Sulawesi Province. Originality/Value: The novelty of this study lies in the empirical validation of the utilization of the concepts of representativeness and anchoring-adjustment in the behavior of public sector budget planners when determining the budget amounts for the upcoming period.