An Alternative Approach to Understanding Budgetary Trade-offs

In this paper we criticize existing research on budgetary trade-offs on a number of grounds, including (1) its focus on only a limited form of trade-off behavior, (2) its use of a modeling strategy that avoids an explanation of trade-off outcomes and likely results in specification error, and (3) its generally weak development of the central concept of trade-off. Accordingly, we propose an alternative methodology for studying budgetary trade-offs. We begin by presenting a general taxonomy of trade-offs. Then, we analyze when and where the various types of trade-offs are likely to occur within the U.S. federal budget process. Finally, we conduct empirical analysis of two trade-off choices in the federal process: that between defense and domestic spending and that between transfer spending and consumption. Unlike previous trade-off studies, our models assume that trade-off outcomes will vary depending on environmental conditions. Foreign policy factors seem to be the key determinants of the domestic-defense trade-off outcome, while economic conditions appear critical to the choice between transfers and consumption.