Managers which know that next year's budget is likely to be based on their use of this year's allocated funds have incentives to ensure that all of their budgeted funds are used in full each year.

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This phenomenon is known as "use it or lose it" budgeting, where managers spend their entire budget to avoid reductions in future budgets, operating under the assumption that underspending will signal that they can operate with less funding.

Managers Which Know That Next Year's Budget Is Likely to Be