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Over-optimism in forecasts by official budget agencies and its implications
The paper studies forecasts of real growth rates and budget balances made by official government agencies among 33 countries. In general, the forecasts are found: (i) to have a positive average bias, (ii) to be more biased in booms, and (iii) to be even more biased at the 3-year horizon than at shorter horizons. This over-optimism in official forecasts can help explain excessive budget deficits, especially the failure to run surpluses during periods of high output: if a boom is forecasted to last indefinitely, retrenchment is treated as unnecessary. Many believe that better fiscal policy can be obtained by means of rules such as ceilings for the deficit or, better yet, the structural deficit. But we also find: (iv) countries subject to a budget rule, in the form of euroland's Stability and Growth Pact (SGP), make official forecasts of growth and budget deficits that are even more biased and more correlated with booms than do other countries. This effect may help explain frequent violations of the SGP. The question becomes how to overcome governments' tendency to satisfy fiscal targets by wishful thinking rather than by action. Chile in 2000 created structural budget institutions that may have solved the problem. Independent expert panels, insulated from political pressures, are responsible for estimating the long-run trends that determine whether a given deficit is deemed structural or cyclical. The result is that Chile's official forecasts of growth and the budget have not been overly optimistic, even in booms. Unlike many countries in the North, Chile took advantage of the 2002—7 expansion to run budget surpluses, and so was able to ease in the 2008—9 recession.
Journal Article
Accountability in Higher Education: Exploring Impacts on State Budgets and Institutional Spending Patterns
In recent years, performance-based accountability regimes have become increasingly prevalent throughout government. One area where this has received considerable attention in recent years is higher education, where many states have adopted funding policies that seek to tie institutional funding to objective measures of performance. To what extent have these policies been effective tools for restructuring financial incentives and exerting influence over administrative behavior? Using data from the Integrated Postsecondary Education Data System, this article finds that performance-funding policies have not had substantial impacts on state budgets but that they have had some limited influence on institutional spending priorities. Furthermore, effects on institutional spending were found to be greater on public research universities than other public colleges.
Journal Article
Does Performance Budgeting Work? An Examination of the Office of Management and Budget's PART Scores
In this paper, the authors use the Bush administration's management grades from the Program Assessment Rating Tool (PART) to evaluate performance budgeting in the federal government-in particular, the role of merit and political considerations in formulating recommendations for 234 programs in the president's fiscal year 2004 budget. PART scores and political support were found to influence budget choices in expected ways, and the impact of management scores on budget decisions diminished as the political component was taken into account. The Bush administration's management scores were positively correlated with proposed budgets for programs housed in traditionally Democratic departments but not in other departments. The federal government's most ambitious effort to use performance budgeting to date shows both the promise and the problems of this endeavor.
Journal Article
State Performance-Based Budgeting in Boom and Bust Years: An Analytical Framework and Survey of the States
The authors examine the track record of applying performance-based budgeting (PBB) across three time periods within a sample of U.S. state governments: (1) throughout the 1990s, (2) in the early 2000s, and (3) during the Great Recession. State-level PBB is analyzed according to four elements: (1) the development of performance measures, (2) its applicability to budgeting and management processes, (3) its utility across the business cycle, and (4) its usefulness for budget players. An analytical framework is devised that highlights the \"publicness\" of American government, draws on the principal—agent model, and considers incentive mechanisms theory. Findings confirm that a good performance measurement system takes time to develop and operate well and that PBB functions more effectively for executive management than legislative purposes. PBB is used more by the states during strong economic times as opposed to during economic downturns. More importantly, PBB is only selectively applied by legislators in most states, whereas top executive policy makers, middle managers, and staff embrace and utilize PBB systems more extensively.
Journal Article
Determinants of the Revenues of the Local Government Budget: Evidence from Panel Data in Vietnam
The state budget system in Vietnam functions within a cohesive structure that allocates financial resources between central and local governments; nevertheless, substantial disparities in socioeconomic conditions among provinces have resulted in increasing discrepancies in local budget revenue. This study, therefore, examines the impacts of fiscal decentralization policy, land utilization, urbanization, provincial competitiveness index, and human capital on local government revenue. The analysis utilizes quantitative panel-data techniques on a dataset encompassing all 63 Vietnamese provinces and municipalities from 2017 to 2022, totaling 378 observations. Econometric estimation employs pooled ordinary least squares, fixed-effects, random-effects, and viable generalized least squares models, along with diagnostic and robustness checks to mitigate unobserved heterogeneity and error dependence. The findings demonstrate statistically significant correlations between local budget revenue and five studied determinants. However, fiscal decentralization policy exerts the most significant influence on the revenue of the local government budget. The results suggest that enhancing municipal fiscal performance needs more than merely modifying revenue-sharing ratios, with significant ramifications.
Journal Article
The Obama Administration and PBB: Building on the Legacy of Federal Performance-Informed Budgeting?
The administration of President Barack Obama, like those of his immediate predecessors, is focused on trying to improve the quality of, and use of, performance data. The federal government has been pursuing performance-informed budget reforms for more than 50 years. Most recently, the Bush administration reforms included the President's Management Agenda and the Program Assessment Rating Tool (PART). The Obama administration reforms include: measuring the effects of the American Recovery and Reinvestment Act; reducing or eliminating poorly-performing programs; setting a limited number of short-term, high-priority performance goals; and funding detailed program evaluations. The administration is taking a more agency-driven approach than the Bush administration, but continues to find it challenging to move beyond production of performance data to its use. There should be opportunities to show how performance information can be used for decision making, given the change in the political climate and the needs to reduce spending and the deficit. Historically, there has been little appetite in the Congress for evidence-based decision making. The administration, however, can continue to demonstrate how federal agencies can use performance information to more effectively manage programs.
Journal Article