SUB‐NATIONAL GOVERNMENT CAPITAL SPENDING IN INDONESIA: LEVEL,STRUCTURE, AND FINANCING

Sub‐national government capital spending is important for both public service delivery and economic development. Currently, Indonesian sub‐national public capital spending appears barely sufficient to cover the annual depreciation of its fixed assets. A substantial proportion of local government investment spending goes to create relatively unproductive assets, such as administrative office buildings. Sub‐national governments finance their capital acquisitions out of gross operating budgets and have thus far not used, to any great extent, either borrowed funds or their significant cash reserves for such purposes. Indonesian sub‐nationals need to spend more on capital than they do now and also need to focus that spending on more useful types of infrastructure. The major constraints to increasing capital spending at the sub‐national level are not related to a dearth of finance, but regulatory rigidities in budget preparation and implementation and, most importantly, a lack of capacity to plan, design and implement investment projects. Copyright © 2010 John Wiley & Sons, Ltd.     

State budget periodicity: An analysis of the determinants and the effect on state spending

Much of the public budgeting literature focuses on the institutional rules of budgeting and how those rules affect process and outcomes. This study focuses on a particularly rudimentary rule of budgeting: the length of the budget period. State budgets are dictated (constitutionally or statutorily) to recur over one-or two-year intervals. Statistical analysis of the determinants of state budget periodicity shows that the more states spend, ceteris paribus, the more likely they are to budget annually. I hypothesize that budget periodicity has the opposite effect on spending: Biennial budget states spend more, ceteris paribus, than annual budget states spend. Ordinary least squares analysis does not support the hypothesis, but with instrumental variable methods, biennial budgeting exhibits a positive and statistically significant effect on state spending.     

Spending Stabilization Rules: A Solution to Recurring State Budget Crises?

Recurring state fiscal crises raise a fundamental question: Is it possible to stabilize budgets over the business cycle? This paper examines spending stabilization rules, an alternative to the inaccurate process of budget forecasting. Under two spending rules, we assess how state budget situations would compare with actual experience. Our analysis reconstructs recent aggregate state budget patterns assuming states had adopted a rule and then takes a closer look at California and South Carolina. With surpluses partially invested in a rainy‐day fund, a spending rule resulted in stable growth of state budgets throughout the recession and sluggish recovery of the early 2000s.     

The Impact of Capital Spending on Municipal Operating Budgets

What is the impact of capital spending for buildings, equipment, and other facilities on future operating expenditures of municipal governments? Because capital spending decisions are made independent of operating decisions in many larger municipalities, managers make long-term capital commitments without fully understanding the repercussions for operations. This implies the need for research that examines more closely the linkages between these budget cycles. This article develops a theory of the relationship between capital and operating expenditures, then uses data from the fortyeight largest U.S. cities to estimate both the magnitude of capital's impact and the time it takes for operating budgets to adjust. The study finds that five of six commonly provided municipal services were affected to varying degrees by past years' capital expenditures. Especially notable is the finding that the operating budgets of labor-intensive services, such as police and fire protection, are most sensitive to capital spending. For public managers, the findings point to the need for closer coordination between the capital and operating budget cycles, especially in those cases where capital outlays have clear, unambiguous positive implications for future operations.     

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.     

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.]     

Does Direct Democracy Reduce Public Debt Evidence from Swiss Municipalities

Although some countries have managed toobtain balanced budgets or even budgetsurpluses in recent times, public debts ofmany OECD countries remain at high levels.Since structural reforms of public spendinghave only infrequently taken place in mostcountries, fiscal pressure will increaseagain in the future due to society's ageingand the accompanying increases in socialtransfer spending. Constitutionalrestrictions on debt levels and legal rulesof the budgetary process, such as a strongrole of the minister of finance, aresupposed to be helping against the debtbias inherent in political decision-makingprocedures. In addition to such top downbudgetary procedures, this paperinvestigates the impact of referendumapproval of budget deficits by the voterson the level of public debt in a crosssection of the 134 largest Swissmunicipalities in 1990.     

The Case Against Balanced Budgets

A proposal by the Fahey government in late 1994 to amend the NSW state Constitution so as to require 'balanced' budgets is one of a number of signs which suggest that the simple notion that total government expenditure should not exceed total tax revenue has gained real influence in Australia, particularly at the state level. This article explains why fiscal responsibility does not require overall budget balance. A balanced budget requirement of this type is not appropriate even if one were to make allowances for recession-induced ('cyclical') deficits, and to seek to ban only 'structural' deficits. The reason for this is there are inherent irregularities in capital expenditure, and only through varying debt levels is it possible to reconcile reasonable stability of tax levels with stable levels of provision of public services (including services from public capital infrastructure).     

Beyond Truth and Integrity in State Budgeting: Why State Governments Use Budget Balancing Maneuvers (or Gimmicks)?

This study investigates the influence of political, structural, economic, and other factors on state governments’ use of maneuvers to balance budgets and eliminate deficits from FY 15 to FY 18. Budget maneuvers are unsound and nonsustainable strategies, such as using borrowed funds to finance operations and underfunding pensions. These practices were documented and graded by The Volcker Alliance for all states and years in collaboration with faculty and students at multiple universities. Consistent with prior research that uses an adaptation framework to explain the strategies government officials use to balance budgets, this research finds that state financial condition has the strongest effect or one of the strongest effects on states’ use of such budget gimmicks.     

The State of the Tobacco Settlement: Are Settlement Funds Being Used to Finance State Government Budget Deficits? A Research Note

In the Master Settlement Agreement, the major U.S. tobacco companies agreed to pay approximately $229 billion between 1999 and 2025 to 46 states, the District ofColumbia, and five U.S. territories. The windfall raises important spending andfinancing decisions for state governments. This research note analyzes how governments are spending their settlement proceeds, especially whether states are using funds to finance current budget deficits, and investigates the financing practice by several states of selling their right to future settlement proceeds to support the issuance and repayment of tobacco securitization bonds.     

Implementing PBB: Conflicting Views of Success

A modern budget reform, performance‐based budgeting (PBB) emphasizes the measurement of government performance by agencies and public servants. In this article we define PBB as requiring strategic planning regarding agency mission, goals and objectives, and a process that requests quantifiable data that provide meaningful information about program outcomes. Performance‐based budgeting requirements are now pervasive in the states. Of forty‐seven states with PBB requirements, thirty‐one have legislated the process to be conducted, while sixteen have initiated the reform through budget guidelines or instructions.¹What remains unknown, yet of vital interest to state administrators, their staff, legislators, and citizens, regards implementation status of PBB systems. How many states are utilizing a PBB process as prescribed by law or administrative directive? And if PBB has been implemented, has it been successful regarding improvement of agency effectiveness and decision making about spending? Perhaps most importantly, has PBB influenced appropriation decisions?. This research is based on responses to a mail survey of executive and legislative budgeters regarding the PBB system established in their state. Results discussed in this article consider budgeters’ response about PBB implementation status and effectiveness as conducted. We find that there are differing perceptions across the branches of government regarding both the extent of PBB implementation as well as its success. Results show that states with better‐known PBB systems have not necessarily realized greater success in terms of effectiveness from this budget reform than states with less popularly known systems, at least as perceived by the budgeters included in this article.     

Pollution,Politics, and Preferences for Environmental Spending in the States

While state environmental and natural resource spending is designed to address actual environmental problems, the budget process is also inherently political. Thus, in the following article we ask a simple question: to what extent does state environmental and natural resource spending respond to the scope of environmental problems in a state, versus the demands of the political process? Unlike the bulk of previous research, we consider both aggregate spending and program‐specific spending. We also consider how the severity of environmental problems and the political environment may interact to determine spending. The findings show that politics, specifically the strength of the environmental movement, is a more important determinant of state environmental spending than pollution severity. However, for some program areas, it appears that strong environmental groups make state budgets more responsive to the severity of environmental problems.     

Fighting with one hand tied behind the back: political budget cycles in the West German states

Theories of political budget cycles have been contested because scholars find that incumbents can manipulate deficits in the pre-election period only if fiscal transparency is low. I argue that these findings do not generally rule out the possibility of fiscal electioneering. Governments may increase spending on highly visible policies. The composition of the budget serves as a second-best strategy. It increases political support without straining the budget balance. An empirical analysis of the West German states reveals alternative electoral budget strategies and ultimately point to the importance of analyzing how governments choose between alternative fiscal instruments.     

The Federal Role in State Fiscal Stress

This article examines the extent to which the federal government'spolicies were responsible for the fiscal stress experiencedby most state governments in the early 1990s. Federal policieshave contributed considerably to recent state fiscal stress,particularly through the Medicaid program—the fastestgrowing part of state budgets—and the recession, whichdepressed revenue and increased welfare and Medicaid spending.Federal aid reductions have not been an important source ofrecent state fiscal stress. The real value of per capita federalaid other than for welfare programs fell considerably in the1980s, but the reductions were much greater for local governmentsthan for states. The largest reductions were in the early 1980s.Federal policies have affected state finances in several otherways—through tax policy, unfunded mandates, and the federalfailure to cope effectively with problems like health and poverty.Federal court rulings have also caused budget problems (as havestate court decisions). In some respects, state fiscal problemsare not a federal responsibility. Rising school enrollments,new corrections policies, and inelastic tax systems have createdfiscal stress for many states. Excessive state spending in the1980s has contributed to recent fiscal problems in some states,but not generally.     

The Georgia Lottery and State Appropriations for Education: Substitution or Additional Funding?

This article examines the use of lottery proceeds for funding public education in Georgia, with specific focus on the state's effort to guard against fungibility of lottery proceeds. The Georgia lottery earmarks proceeds for education and Georgia is among the states requiring a high level of transparency at each stage of the budget and appropriations process. Based upon comparisons of spending before and after the lottery was put in place, we conclude that lottery spending has not been completely offset by substitution. Lottery funds appear to have stimulated additional spending in the target areas. Budget fungibility has been constrained by the transparency of the budget and appropriations process, gubernatorial commitment to supplement not supplant, the policy architecture of the lottery–for–education program, and a relatively strong state economy that renders substitution unnecessary.     

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.     

The Impact of Public Officials’ Corruption on the Size and Allocation of U.S. State Spending

This article demonstrates the impact of public officials’ corruption on the size and allocation of U.S. state spending. Extending two theories of “excessive” government expansion, the authors argue that public officials’ corruption should cause state spending to be artificially elevated. Corruption increased state spending over the period 1997–2008. During that time, the 10 most corrupt states could have reduced their total annual expenditure by an average of $1,308 per capita—5.2 percent of the mean per capita state expenditure—if corruption had been at the average level of the states. Moreover, at the expense of social sectors, corruption is likely to distort states’ public resource allocations in favor of higher‐potential “bribe‐generating” spending and items directly beneficial to public officials, such as capital, construction, highways, borrowing, and total salaries and wages. The authors use an objective, concrete, and consistent measurement of corruption, the number of convictions.     

Political Parties and Higher Education Spending: Who Favours Redistribution?

A nation's endowment with human capital is an important source of economic prosperity, yet education systems as well as the amount of public spending differ both between and within industrialised countries. Traditional approaches in comparative political economy explain education spending from a perspective in which leftist parties favour human capital formation. In contrast, recent approaches claim that – with regard to public financing of higher education in stratified education systems – the basic assumptions of partisan theory rather lead to the opposite hypothesis. In such systems, a pattern of reverse redistribution emerges, under which electoral incentives let right-wing parties favour increases in higher education budgets. This article tests both claims within the decentralised German education system. Its encompassing empirical strategy provides clear support for the latter hypothesis in the 16 German states between 1992 and 2003. The results imply that the partisan composition of government and preferences for redistribution continue to matter.     

Political budget cycles and media freedom

This paper examines the effects of elections on the conduct of central governments' fiscal policies. To do so, it uses a unique panel database that includes disaggregated spending and revenue series at the central government level for multiple countries over the 1975–2010 period. Examining political environments under which incumbent governments generate political budget cycles (PBCs), and comparing the relative importance of factors influencing cycles, we identify media freedom as the factor that plays the most critical role. This result provides a micro-foundation for rational opportunistic models for PBCs that rely on asymmetry of information about politicians' competence, and also offers a way to relate different conditioning factors of PBCs, including fiscal transparency and the maturity of democracies. Further, we show that the election-year rise in budget deficits under low media freedom is primarily driven by an increase in the current, not capital, component of public expenditure.     

When is Growth Not Growth? The Curious Case of Mental Health Budgeting in New York

This article argues that the adverse impact of Medicaid on state budgets alleged in various public debates has been overstated, in some measure because of the inaccurate and misleading manner in which Medicaid expenditures are appropriated in state budgeting systems. Data on Medicaid and mental health spending in the state of New York is used for analysis. The first section provides a Medicaid spending and budgeting background. The second section discusses Medicaid and mental health in New York. The third section describes actual budgeted spending for mental health in New York, and the final section provides a discussion and concluding comments.