Citizen participation in budget processes is an attractive governance strategy for creating sustainable local finance. In participatory governance, citizens are engaged in the governmental policy decision-making process for sustainable communities. Despite the importance of a participatory government, its instrumental benefits are uncertain and remain unexamined at the local level. No one has offered any extensive evidence based on large-N data to ascertain such benefits. This article fills this gap in the literature by testing the impacts of participatory budgeting on local financial outcomes. The results show that participatory governments are financially more effective and equitable without sacrificing efficiency. Advancing a more institutional perspective, this article explains the identified effects of participation mechanisms in the budget process on different local financial outcomes.

This study identifies the impacts of different citizen satisfaction signals (positive/negative) on managers’ agreement to use various participation channels. Citizen satisfaction with public service quality plays an essential role in managers’ accountability expectations. Accordingly, it is crucial to examine how public managers use participation mechanisms, reacting to citizen satisfaction signals on public service quality. The results confirm a negativity bias: Managers are more reactive to citizens’ negative signals than a positive signal in their service quality evaluations. However, the negative signal’s effect does not reach the participation tools, where the degree of their decision-making is highly delegated to citizens.

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