Bureaucratic Inefficiency: Failure to Capture the Efficiencies of Outsourcing

This paper analyzes the political economy ofoutsourcing by 16 federal bureaus during 1981-96. Inan era of restricted budgets and budget balancing, thepaper questions why federal bureaus did not exploitfully the efficiencies of outsourcing. It proves thatfederal bureaus can achieve technical and costefficiency through outsourcing when contracts can benearly fully specified. Federal bureaus outsource byobtaining inputs to their production processes throughcontracts with competitive market producing units. Econometric results substantiate the hypothesis that``institutions matter,'' and reveal that bureausachieve varying levels of technical efficiency throughdifferent levels of outsourcing.     

Police bureaucracies,their incentives,and the war on drugs

After 1984 local law enforcement agences in the U.S. substantially increased arrests for drug offenses relative to arrests for property and violent crimes. This paper explores why this reallocation of police resources occurred, focusing on alternative “public interest” and bureaucratic self interest explanations. The Comprehensive Crime Act of 1984 is shown to have altered the incentives of police agencies by allowing them to keep the proceeds of assets forfeited as a result of drug enforcement activities. Empirical evidence is presented which shows that police agencies can increase their discretionary budgets through the asset forfeiture process.     

The political policy cycle: Presidential effort vs. presidential control

After disentangling presidential budget proposals from budgetary changes attributable to fluctuations in the economy and to congressional action, we find consistent evidence for a presidential macroeconomic policy cycle attuned to the elctoral cycle. Proposed budgets are more expansionary in election years than at other times. The Congress, however, also plays a significant role in determining fiscal outcomes. Its budgets are systematically related to those of the President and in general reinforce presidential efforts to respond to the electoral cycle. Although Presidents generally propose quite conservative budgets, their proposals are more expansionary in presidential election years than in other years. The Congress, which generally adopts an expansionary fiscal policy ratifies this proposed macroeconomic policy electoral cycle by adopting even more expansionary budgets in presidential election years than they do at other times.     

Budgeting Rules and Program Outcomes

It is not efficient for a budget system either to enable excessively frequent changes in programs and tax policies or to be rigid and unresponsive. Program durability is one measure of how a budget system weighs the competing goals of resoluteness and responsiveness. The federal budget has different processes—mandatory and discretionary spending and tax expenditures—each based in separate congressional committees and relying on separate procedures. This article examines the budget systems' durability. One finding is that mandatory spending programs and tax expenditures are more durable than programs backed by discretionary spending. However, while programs targeted to vulnerable populations and supporting long‐term planning, such as in income support and health, might benefit from durability, these programs display shorter durability, not longer. While displaying greater durability, tax expenditures do respond to changes in different economic sectors, based on the changes in spending of other budget systems.     

Exploring Explanations of State Agency Budgets: Institutional Budget Actors or Exogenous Environment?

Budgetary incrementalism argues that three institutional actors—agencies, executive budget offices, and legislative committees—dominate budget outcomes. The complexity and interdependency of public programs expands this expectation to include the influence of exogenous budget factors. Findings from a survey of state agency heads reveal that budget environments do influence state agency budget outcomes. However, the institutional budgetary participants, especially governors and legislatures, envisioned in classical incrementalism retain their principal and primary influence on state agency budgets. A significant departure from classical incrementalism is that agencies are not as influential as previously depicted.     

A theoretical analysis of the case for a balanced budget amendment

A balanced federal budget is not a best outcome for all situations, and a constitutional amendment to require annually balanced budgets is not well defended on grounds that it is. However, the case for a balanced budget amendment may have some merit on other, subtler grounds. This article outlines a set of such grounds.Specifically, if it can be shown that the political process systematically undervalues a desirable relationship between revenues and expenditures, a balanced budget requirement might be defensible. The grounds would be that annually balanced budgets are a second best solution, given an argument that the unconstrained political process produces even less desirable outcomes. However, existing knowledge does not make an adequate case that such a rule is needed.I would like to acknowledge the support of National Science Foundation Grant #SES-8218421, and the comments of the following persons on an earlier version: Arthur Benavie, J. Budziszewski, Henry Chappell, Richard Froyen, Paul (Kress, Peter Lange, Jeffrey Obler, Donald Searing, Kenneth Shepsle and the late Clement Vose. Of course, none of the above bears any responsibility for the content.     

Fiscal Decentralization,Flat Administrative Structure,and Local Government Size: Evidence and Lessons from China

This paper examines the effects of fiscal decentralization and flat administrative structure on local budget size and program outlays. We test three related theoretical hypotheses in China's adoption of province‐over‐county scheme of financial administration. We provide evidence that both decentralization of expenditure and decentralization of revenue increase the size of local budgets; that the impact of the former far outweighs that of the latter with local budgets on a rising trajectory; and that discretion grants localities more means to increase their budget. These results show that as China's reform deepens the proportion of local outlay on administration declines because of more local discretion from eliminating the prefecture bypass between the province and counties. But neither decentralization nor increased local discretion has allocated more local resources for education, and both contribute to increasing outlay on economic development. The paper formulates tentative policy recommendations that carry potential application for other countries. Copyright © 2016 John Wiley & Sons, Ltd.     

Fiscal Reaction to State Aid Uncertainties: Evidence from New York State

Late budgets have become increasingly present across the states and especially persistent in states such as New York and California. The combination of delayed states budgets and institutional constraints may trigger specific budgetary strategies. Uncertainty over state aid may lead school districts to over‐ or underestimate school budgets, which ultimately may have an effect on real property taxes and the amount of education consumed. Evidence from New York State school districts suggests that school districts react to uncertainty in the state budget through a combination of revenue, expenditure, and fund balance changes. The findings suggest that districts engage in “gaming” the institutional constraints, and tend to build up large fund balances as a response to perceived uncertainty.     

Bias in the formulation of local government budget problems

Government budgets are premised on forecasts of revenues and expenditures. These forecasts are subject to both stochastic error and strategic manipulation. Circumstantial evidence in the budgeting literature and in the popular media suggest that government officials routinely bias the forecasts underlying budgets. The research reported here asked three primary questions: To what extent are budget forecasts systematically biased? Why? (Are fiscal and electoral variables systematically related to the magnitude and direction of the biases?) What political and ethical difference do the biases make? From the literature and an analysis of the incentives facing politicians and bureaucrats, we developed hypotheses about budget biases. These hypotheses were tested using time series data for the City of Pittsburgh, Pennsylvania (1941–1983); the City of San Diego, California (1950–1982); and the Pittsburgh (Pennsylvania) School District (1946–1983). In these locales over the periods examined, budgets were systematically pessimistic; revenues were underestimated and expenditures were overestimated. The fiscal and electoral factors hypothesized to account for this pessimism are, however, very mixed in their ability to explain the biases.     

The Status of the Budget Constraint,Federalism and the Relative Size of Government: A Bureaucracy Approach

We develop a model along the lines of Niskanen,articulating that under a soft government budgetconstraint the full production cost of the public goodis not reflected in the tax price as perceived by theconsumer-taxpayer-voter. Various proportions ofnon-tax financing and different degrees of votermyopia with respect to discounting the future taxliabilities are taken into account. It can be shownthat both the actual level of public output and theamount of slack resources are lower under a hardbudget constraint than under a soft budget regime.Lower levels of government typically operate under ahard budget constraint when compared with the federallevel since they have only limited (public) borrowingopportunities and no access to money creation(seignorage). In a federalist setting more governmentdecisions are taken under a hard budget constraintthan in a unitary state. Hence one would expect thatthe overall size of government is relatively smallerin a structure with fiscal federalism. An empiricaltest for 19 OECD-countries (1990–1992) seems tosupport this hypothesis.     

Budgeting for Contracting in Local Government

While the amount of contracting out seems to be leveling off, the number of larger, long‐term contracts seems to be increasing. Such contracts are generally not well described in local budgets. Recent efforts in some cities to shift to more outcome‐oriented performance budgeting should push toward more clarity in reporting on major contracts in the budget. This article examines how a handful of major cities handle contracts in their budgets—in some cities contracts are omitted from the budget or all merged into one budget line—and makes some suggestions for improvements.     

Does Public Service Motivation Lead to Budget Maximization? Evidence from an Experiment

ABSTRACT

One of the most enduring theories in public management is Niskanen's model of the budget-maximizing bureaucrat. While popular, the image of bureaucrats relentlessly advocating for larger budgets has been frequently attacked. A chief criticism is that the assumption of self-interest does not align with budget maximization, since bureaucrats have little direct way to benefit from larger budgets. A more plausible assumption that offers a stronger causal logic for maximization behavior is that bureaucrats are motivated to help others. If they believe that spending on public goods is beneficial to society, public employees may be likely to advocate for larger budgets. Using vignette-experiment methodology, this article finds that individuals with higher levels of public service motivation do not advocate for significantly higher budgets. The results undercut an alternative theoretical means to support Niskanen's original theory, thereby further undermining the budget maximization model.

[Supplementary material is available for this article. Go to the publisher's online edition of International Public Management Journal for the following free supplemental resource: Survey Text with Vignettes.]     

Rationality and the political business cycle: The case of local government

The empirical results which have been reported support the hypotheses' implied by the model of rational political behavior set out in Section 2. In pre-election periods, local government development expenditures deviate significantly from their normal levels. The extent of deviation is approximately 20%.Consistent with the predictions of this model, it is found that incumbents not seeking re-election deviated far more in their pre-election discretionary budget expenditure than incumbents seeking re-election. The expenditure gap between the two types of incumbents is large and statistically significant. Incumbents not seeking re-election exhibit a deviation equivalent to 47% of the development budget, while those seeking re-election exhibit a 12% deviation.     

The Variety of State Capital Budgets: A Survey

In 1986 the staff of the U.S. Office of Management and Budget reviewed issues concerning the possible development of a federal capital budget. As part of this study, a survey of all 50 states was conducted concerning state capital budgets. This paper summarizes the results of the survey. According to the survey responses, 42 states have capital budgets. Of these 42, 37 generally borrow to finance some public capital and 5 generally do not. Of the 8 states that said they do not have a capital budget, 4 generally borrow to finance some public capital and 4 generally do not. The survey also found that the form of a governor's capital budget, the way legislatures enact capital spending, the coverage of the capital budget, and the method of financing capital vary widely among states, making it virtually impossible to define a state capital budget in a precise way. Large amounts of state capital spending, especially for transportation, are generally not included in state capital budgets.     

The Budget‐Minimizing Bureaucrat? Empirical Evidence from the Senior Executive Service

In a representative democracy, we assume the populace exerts some control over the actions and outputs of government officials, ensuring they comport with public preferences. However, the growth of the fourth branch of government has created a paradox: Unelected bureaucrats now have the power to affect government decisions (Meier 1993; Rourke 1984; Aberbach, Putnam, and Rockman 1981).
In this article, I rely on two competing theories of bureaucratic behavior-representative-bureaucracy theory and Niskanen's budget-maximization theory-to assess how well the top ranks of the federal government represent the demands of the citizenry. Focusing on federal-spending priorities, I assess whether Senior Executive Service (SES) members mirror the attitudes of the populace or are likely to inflate budgets for their own personal gain. Contrary to the popular portrayal of the budget-maximizing bureaucrat (Niskanen 1971), I find these federal administrators prefer less spending than the public on most broad spending categories, even on issues that fall within their own departments' jurisdictions. As such, it may be time to revise our theories about bureaucratic self-interest and spending priorities.     

The President's FY 1990 Budget: The Last Act in a Decade of Change

This article examines the budget requests of Presidents Reagan and Bush for fiscal year 1990, and how the federal budget has changed during the decade of the 1980s. The author concludes that the federal budget has become less controllable, as the priorities and composition of federal expenditures have shifted during the Reagan years. While the Reagan and Bush budgets do not differ significantly, the manner in which they were constructed does. The effort of President Bush to define his budgetary version of a "kinder, gentler" America may be more illusory than real. The author also traces the change in federal assistance to state and local governments, concluding that, apart from transfer payments, the federal role has markedly declined.     

Why do crises go to waste? Fiscal austerity and public service reform

In the tight budgetary conditions following the 2008 financial crisis, governments have proposed saving money by reforming public services. This paper argues that tight budget constraints make reform harder by introducing an information problem. Governments are uncertain about bureaucratic departments’ effectiveness. Normally, effective departments can be identified by increasing their budget, since they can use the increase to produce more than ineffective departments can. When budgets must be cut, however, ineffective departments can mimic effective ones by reducing their output. Budget cuts thus harm both short-run productive efficiency, and long-run allocative efficiency. I confirm these predictions in a US dataset. Low marginal productivity bureaucracies reduce output by more than expected in response to a budget cut, and budget setters respond less to observed short-run marginal productivity after cutback years.     

Boom and Bust Budgeting: Repetitive Budgetary Processes in Nigeria, Kenya and Ghana

One of the least studied topics in comparative budgeting is how governments budget during economic and boom and bust cycles. Theory and past evidence suggest that national budgets of poorer countries are made and remade continuously over these periods. Case material from Nigeria as well as supplemental information from Ghana and Kenya illustrate the principal features of the persistence, types, and sequence of such repetitive budgeting. The experience of the three countries in boom and bust budgeting has considerable implications both for a theory of comparative budgeting and for national budget management and policy in Subsaharan Africa specifically.     

A partisan model of government expenditure

Partisan models of budget politics largely concentrate on the size of government, budget deficits and debt, but most theories have little to say as to what the effect of party politics on both the size and the composition of budgets is. This paper seeks to extend previous literature in two directions. First, a model of spending preferences is developed that relates actors' preferred level and allocation of expenditure to electoral gains from fiscal policies. Second, changes in both total expenditure and the expenditure mix of two budget categories are analyzed for the effect of parties' spending preferences as stated in their election manifestos. Using data on 19 OECD countries from 1971 to 1999, the paper finds support for general partisan hypothesis. The results suggest that the actual spending preferences of parties matter whereas they do not indicate that parties of the left consistently differ from parties of the right in their spending behavior.     

Integrating Gender into Government Budgets: A New Perspective

A government's budget represents a statement of its priorities. During the past 25 years, the international community has recognized that gender equality is essential for sustainable economic growth and full social development, and it has called upon nations to use their budgets to promote genderequitable resource allocation and revenue generation. More than 60 countries have answered this call by implementing gender-responsive budgets at the national and subnational levels. However, gender-responsive budgeting is virtually unheard of among public finance scholars and U.S. public administration scholars and practitioners. Here we define gender-responsive budgeting, discuss the need for it, describe the lessons learned, and discuss its potential as a budget reform. We hope our commentary will bring gender-responsive budgeting into the mainstream of research in the U.S. public administration community and into the practice of government budgeting.