Economic Incentives and the Choice of State Government Accounting Practices

Several recent studies have examined possible economic determinants of accounting policy choices of local government entities. For example, Zimmerman [1977] and Maher and Keller [1978] proposed economic reasons for the current (diverse) state of municipal accounting and financial reporting, and Evans and Patton [1983] identified economic incentives leading to participation in the Municipal Finance Officers Association Certificate of Conformance program. A recent survey by the Council on State Governments (CSG) [1980], in its summary of major accounting and reporting practices for individual state governments, characterizes both the general status of state government accounting and the diversity of accounting practices observed across states. Using the data reported by the CSG and some of the economic arguments offered in earlier research, this study provides preliminary evidence on the association between economic factors and cross-sectional variations in accounting practices of state governments. The specific evidence presented is characteristic of states that report quantitatively