Political accountability and social equity in public budgeting: Examining the role of local institutions

Abstract This paper examines how local institutions in U.S. municipalities can affect budget allocations for socially disadvantaged groups, specifically focusing on eight key institutions related to electoral rules, power dynamics, and bureaucratic authority. Additionally, we develop a composite index to assess the overall level of (de)politicization within the local institutional framework. Theoretically, local institutions can shape public officials’ political accountability and administrative discretion during policy processes, thereby influencing their decision‐making on budget allocations. Empirical analyses primarily use data from ICMA's multiround national surveys and employ the historical background of municipalities as an instrumental variable (IV) to address potential endogeneity problems associated with local institutions. We find that local institutions that strengthen politicians’ political accountability to citizens lead to greater budget allocations for redistributive social welfare, thereby fostering social equity in public budgeting. Conversely, the institutions that enhance the authority of senior bureaucrats negatively affect budget allocations for redistributive social welfare.