Finance Managers' Propensity to Save

Article excerpt

ABSTRACT. This paper presents a model of government saving in order to examine several questions regarding the personal and professional saving preferences or inclinations of a national sample of local government finance managers. First, is personal propensity to save related to a preference for local government saving? Second, is personal propensity to spend related to the finance managers' opinions about their local government's spending? Third, what are the determinants of finance managers' propensity to save or spend, both personally and for their local government? Results confirm that finance managers have a personal propensity to save and a positive view toward local government saving. The opposite, propensity to spend, is also influenced by personal preference. Determinants of these behaviors are explored.

INTRODUCTION

Government windfalls and, especially, the inclinations of individual public finance managers to save or spend them, raise questions for public budgeting and finance researchers and practitioners. Are the individual finance managers' views about dealing with household windfalls the same as their views about government windfalls? What kind of advice would finance managers be likely to give elected officials regarding fiscal choices?1 This paper reports research linking the individual saving-spending inclinations of a group of local government finance managers to the preferences they have as finance advisors. The research explores householdgovernment differences, how and why finance managers differ among themselves, and what factors promote or discourage saving.

Local government finance managers have a central, expected role in government finance deriving from their expertise and professionalism. Their central role depends on the deference others with central roles give them. Deference derives from their traditional function as budget conserver (Wildavsky, 1986) as well as the jobs of financial strategist, chief accountant, internal auditor, and financial record keeper, which give them expertise that other decision makers find indispensable. Moreover, finance managers' advice to others draws on well-known professional norms and best practices (National Advisory Council on State and Local Budgeting, 1998; McCollough & Frank, 1992). Finally, the economic assumption that money is fungible is countered by mental accounting research confirming that "money from different sources is treated differently" (Heyndeis & Van Driessche, 1998, p. 381) and, directly relevant for this study, that there are psychological aspects to the framing of financial windfalls (Epley & Gneezy, 2007, p. 42). These behaviors suggest that local government decision makers and stakeholders expect finance managers to argue for saving more often than for spending a marginal increase in revenue.

Advocating a saving norm might reflect a finance manager's personal preference. As a professional group, finance managers' personal inclinations toward saving or spending are unknown, contrasting with what is known about their day job roles, norms, and best practices that support saving. This study's primary purpose is to examine finance managers' "propensity to save." Here, "propensity" follows everyday usage rather than the strict economics definition that identifies the actual proportion of a windfall individuals (or households) and governments save rather than spend.2 Saving is the activity or process of producing savings (Warneryd, 1999, pp. 44-45). The desired outcome of a saving policy is savings.

Specifically, this paper reports research on three questions. First, do finance managers' personal propensities to save relate to their beliefs about supporting saving by their local government? Second, are their personal propensities to spend related to their beliefs about their local government's spending? Third, what about finance managers suggests a propensity to save or spend, personally and professionally for their local government? …