The article focuses on the participative budgeting; a case of a municipality with extended powers (ORP), particularly Semily, is investigated using the process-tracing method. This enables empirical observation of the causal mechanism in the period of implementation of participative budgeting (PB) and identification of the actual causes and conditions under which the mechanism functions. The investigation proven that the municipality of Semily is a good example of a successful implementation and functioning of participative budgeting. The primary aim of the study is to fill the gap, at least partly, regarding the research into democratic innovations in the Czech Republic and participative budgeting in particular. The study is divided into three sections. The introduction presents the issue of participative budgeting and overviews the status quo in research. The first section clarifies the concepts and definitions related to participative budgeting in the context of democratic innovations. The second section explains case selection, data set and method of analysis, and the third section deals with a case study conducted with the municipality of Semily.