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Jack Yun-jie Lee
National Open University, Taiwan
XiaoHu Wang
University of Central Florida
Jack Yun-Jie Lee is Professor of Public What is the impact of performance-based budgeting and decision making (Jordan and Hackbart 1999;
Administration at the National Open Univer-
(PBB) on governmental spending? Do various PBB Joyce 1993; Willoughby and Melkers 2005), few
sity in Taiwan. His Ph.D. in Public Policy
implementation strategies result in different outcomes? researchers have explored how it may affect govern-
Analysis is from the University of North
Carolina at Chapel Hill. He was a Visiting The authors. Jack Yun-jie Lee of National Open ment spending behaviors. After all, PBB scrutinizes
Professor at Nanjing University, China and
University in Taiwan and XiaoHu Wang of the public program performance and should affect how
a Fulbright Visiting Scholar of Kennedy
University of Central Floriday these programs behave in
School of Government at Harvard University.
resource allocation decision
He thanks Fulbright Foundation and the gathered data from the United
Asia Programs of Kennedy School for their
States, Taiwan, and China [Performance-based budgeting making and curbing wasteful
(PBB)] scrutinizes public
support of this study.
(Guangdong Province) to explore spending. This is especially
E-mail: jack3747kimo@yahoo.com.tw
critical during periods of rapid
the possible intermediate- and program performance and
XiaoHu Wang is professor of public long-term results of PBB. The should affect how these growth in debts and deficits as
administration at the University of Central data demonstrate how the impacts governments struggle to control
Florida. His research covers topics in per- programs behave in resource spending.
of PBB vary across countries and
formance management and public financial
allocation decision making and
management. He is the author of Perform- regions.
ance Analysis for Public and Nonprofit curbing wasteful spending. Using databases from three
Organizations (Jones & Bartlett, 2009).
E-mail: xwang@mail.ucf.edu
the 1980s, perform- "
ance-based budgeting exploratory
(PBB) has been adopted by many countries to understand how
to improve accountability and the effectiveness of spending behaviors
public programs. The U.S. Congress passed the enriching the conv
Chief Financial Officer Act of 1990 and the Govern- impact. A compari
ment Performance and Results Act (GPRA) of 1993, may uncover possi
which together laid down the legislative foundation and impediments,
for PBB reforms. PBB has also advanced rapidly in findings and broad
other countries in the Organisation for Economic research question o
Co-operation and Development (OECD) as a way to of PBB on spendin
make government more competitive and cost-efficient
and as a response to cynical taxpayers who demand Next is a framewor
more accountable government spending. Many ing growth, PBB p
have expanded the practice of PBB and introduced spending, followed
new legislation that requires performance measure- section to present
cludes with lessons
ment and benchmarking (OECD 2002; Willoughby
and Melkers 2005). In the countries that have used of assessing PBB im
performance measurement for a number of years,
Framework
many have also shifted to report outcomes and build
a stronger link between performance and budgeting
Spending Growth
(OECD 2002; Perrin 2003). Following the princi- By the mid-1980s, the U.S. federal deficit had grown
ple of the GPRA, Taiwan and China (Guangdong significantly. The total federal budget deficit grew
from $2.8 billion in 1970 to $221 billion in 1986 and
Province) also adopted PBB in 2001 and 2003,
to $290 billion in 1992. The deficit growth was large
respectively.
enough to require a set of budgetary reforms aimed
Though studies have been conducted to examine in part at curbing the growth of the national debt
PBB s immediate impact on management practices (Carroll 1995; Joyce 1993).
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More recently, many Asian countries were also challenged to curb Taiwan
budget deficits and government debts. In Taiwan, for example, the The cabinet of the executive branch of Taiwan (Republic of China),
government faced a fiscal crisis in which public debt grew at an the Executive Yuan, initiated a national conference on administrative
accelerated pace. According to a report published by the Council reforms in 2001, launching a series of budgetary reforms intended to
for Economic Planning and Development in 2003, Taiwan led the transform administrative agencies into result-oriented performers. In
world in issuing public debt between 2000 and 2002, resulting in the same year, the government issued the Administrative Regulations
17.9 percent annual growth in the public debt to gross domestic of Performance Assessment for Agencies (ARPAA) subordinate to the
product (GDP) ratio during the three-year period. The long-term Executive Yuan, outlining a PBB framework for the public sector.
deficit of the central government accelerated from NT$2,357.2 bil-
lion in 2000 to NT$3,936.7 billion in five years (NT is the Taiwan With strong support from the prime minister, the ARPAA requires
money unit: New Taiwan Dollar). The total public debt of central each agency to submit strategic performance objectives, perfor-
and local governments ran up to NT$4.8 trillion in 2006, account- mance indicators, and performance targets in three key performance
ing for 40 percent of GDP. areas: services, manpower, and funding. Each agency is required to
develop 5-10 strategic performance objectives, as well as perfor-
In China, public spending has been a key tool for the government mance indicators for each objective that reflect the agency's specific
to sustain economic growth. Public spending relative to GDP in functions and activities.
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Source: Reprinted with the permission of the Research, Development, and Evaluation Commission.
The authors thank Deputy Director Wu-Yu Lee of the RDEC for the support.
Noticeably, the project management process involves a carefully Furthermore, the department created a new agency, the Perfor-
designed assessment phase in which each agency uses performance mance Evaluation Division (PED), to compile and analyze financial
results achieved in the previous three years to set a performance statistics, and to organize and conduct the performance evaluation
goal. The performance goal for the next four years is established, of programs. The evaluation consists of an agency self-evaluation as
often at 10 percent higher than the previous goal. The results of this well as a formal assessment. The formal assessment often focuses on
assessment are taken into consideration in making funding decisions several selected programs and is done by public officials from the
for the budget next year. Moreover, the agency's performance results finance department as well as external experts such as scholars or
are linked with employees' financial benefits. university professors. An evaluation report is prepared by the Perfor-
mance Evaluation Division and delivered to agencies and individual
China (Guangdong Province) officials (Niu, Ho, and Ma 2006).
In 2003, Guangdong Province, China, became the first province in
the People's Republic of China to launch PBB reform. The province, Despite its admirable goal, the PBB effort in Guangdong was
located in southern China, was the first to implement market-ori- considered experimental. It is an administration-driven effort, and
ented reform in the late 1970s, and it is known for its progressive no PBB legislation was passed. The scope of the reform has been
economic and political initiatives. In 2003, Guangdong's per capita limited, too. Only programs in six large agencies were selected.
GDP was among the highest in China. In 2003, the Guangdong These agencies were selected because they had sufficient resources
government's revenues amounted to roughly 13.4 percent of total to implement the initiative and because agency leaders demon-
provincial government revenues, and its expenditures made up strated support for the reform. The programs selected are in areas
about 9.8 percent, both the largest in China. of transportation, education, tourism, research, and development.
Guangdong is limited by its lack of expertise in performance data
The finance department of Guangdong Province initiated and analysis and evaluation. The Performance Evaluation Division has
coordinated the PBB initiative. After securing support from key not successfully developed skills and capacities needed to extend
government party officials, members of the local congress, and the PBB to other programs, and the progress in developing expert
other interest groups, the department started publishing an annual inventory has remained unsatisfactory.
guidebook of regulations and policies to promote its PBB initiative
among department officials. The book also includes expert opinions Despite its goal to link performance with budgetary decision mak-
from the central Ministry of Finance, the local congress, and the ing, Guangdong reformers set a modest objective at the early stage
Guangdong finance, audit, and supervision departments to dem- of the reform to enhance understanding of performance evaluation.
onstrate the broad support behind the reform initiative (CDRF With no drastic changes in the management system, the focus of
2006). PBB was on learning, education, experimentation, and information
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dissemination to help officials understand the need for PBB. No manifested in an accelerating government debt level. PBB practice
significant effort was made to link performance to funding deci- is mainly treated as a spending control tool used to placate citizens
sions. And, no change was made to alter expenditure classifications and mass media.
and accounting codes to reflect the program cost needed for making
performance funding decisions. It is important to note that budgeting is essentially a political
process, and spending decisions represent a compromise between
Table 1 summarizes the key dimensions of PBB in the United diversified political powers. Performance information, even if used
States, Taiwan, and China (Guangdong). While the PBB effort in in making spending decisions, is likely adopted to advance the
the United States is clearly characterized by legislative pressure for value of a political agenda in the budgeting process (Joyce 1993;
performance accountability in all federal agencies, the intent of the Wang 2008). There is some evidence to show the impact of PBB
PBB in Taiwan and Guangdong is more of an administrative effort on budgetary decision-making capabilities and behaviors (Jordan
to improve managerial practices and operations. Particularly in the and Hackbart 1999; Lee and Burns 2000; Willoughby and Melkers
case of Guangdong, no legislation was involved, and the executive 2000).
leadership support was relatively limited. PBB training has been
thorough and intensive in the United States and Taiwan, but not Method
in China, where the PBB effort is designated as experimental, with This study employs the comparative method to systematically assess
relatively limited financial support. Moreover, while the government alternative explanations for PPB practices adopted in different coun-
in Taiwan shows an assertive intention to link performance results tries (regions), and to examine effects of these practices on spending
to funding decisions, the practices in the United States and China behaviors. The comparative method specifies the conditions under
suggest a more cautious approach to performance funding. which one country can learn from another, helping researchers find
new policy options in other countries and discover latent policy
Performance-Based Budgeting and Government Spending constraints and opportunities.
How does PBB influence government spending behavior? PBB
practitioners have tried to integrate performance information into The selection of countries (regions) being compared is based on
budgetary decision making (Cope 1995; Grizzle and Pettijohn purposive sampling, with the United States as a highly developed
2002; Willoughby and Melkers 2000). Program outcomes are used country (GDP per capita of $44,197), Taiwan as a newly developed
in budget deliberations about funding priorities and levels, helping region (GDP per capita of $16,442), and China as the largest devel-
to allocate resources more effectively in order to meet expectations oping country (GDP per capita of $3,250).
of the public and elected officials (GAO 2001).
A time-series design is used to assess the impact of PBB on spend-
Specifically, PBB can be used as a strategy to change spending ing. This design allows intermediate- and long-term assessment,
behaviors by proposing fewer ineffective programs or by elimi- generating observations of multiple years before and after PBB as
nating more ineffective existing programs. In the United States, shown in the following diagram:
for example, the GPRA and related legislation were designed to . . . OOOOO P OOOOO . . .
control or eliminate wasteful use and mismanagement of pub-
lic funds (Breul 2007). In Taiwan, the PBB effort is specifically where O is an observation of spending in a specific year, P repres
designed to control governmental spending by using performance the implementation of PBB, and the ellipses represent any possib
management tools when the government is facing a fiscal crisis, observations of spending. This design allows multiple observation
Design
Key purposes Performance accountability, Managerial efficiency and effec- Managerial efficiency and
spending control tiveness, spending control effectiveness
Key driving forces Legislators and some administra- Administrators Administrators
tors
Asse
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of spending, resulting in a hypothesis that spending variations after DSL = a + bxGDPt_x + bt_x + bt_x + b4 PBB,
PBB indicate the possible impact of PBB. Multiple observations
where SGRt and DSLt are measures of spending at time t; GDPtX is
also allow a measurement of possible intermediate- and long-term
the growth rate of GDP at time t-l; Rf x is the growth rate of rev-
impacts of PBB. In the assessment, government spending is mea-
enue at time t-l; E^x is the growth rate of expenditure at time t-l;
sured by the spending growth rate and the spending level in relation
PBB denotes the practice of PBB (1 if PBB was adopted, and 0 if
to government revenues and GDP, defined as follows:
PBB was not adopted in a given fiscal year); t represents the annual
data for 1980-2006; and a and b are parameter estimates.
Spending Growth Rate in t (SGR)
= {Total Expenditure t- Total Expenditure tX) I Total Expenditure^ Note that the SGRf model does not include EfX. This is because
SGRf and Et_x should be highly associated. The SGRf model excludes
Deficit or Surplus Level in t (DSL)
EtX in order to avoid a severe condition of the models endogenesis.
= {Total Revenue t- Total Expenditure) I GDPt
Identification and inclusion of all of the supply and demand fac-Table 2 Regression Results for the Spending Growth Rate
tors in a model is impossible and does not serve the exploratory
U.S. Taiwan Guangdong
nature of this study. After all, the main purpose of the analysis is to
Intercept .006829 17.291 4.676
explore the relationship between PBB and budgetary outcomes by
(0.019) (2.042) (0.788)
controlling socioeconomic and financial factors in a given politi-
cal-economic context, rather than to construct a perfect model to GDP^ 1.21 -0.225 0.582
(2.308)** (-0.201) (2.259)**
explain expenditure levels or budget deficits. With the clarity and VIF=2.195 VIF=1 .456 VIF=1.022
parsimoniousness of the model in mind, we use GDP as a proxy for
flM -0.157 -0.189 0.172
societal demand factors and revenue growth as a proxy for supply (-0.819) (-1.161) (1.220)
factors. VIF=1.374 VIF=1.570 VIF=1.02
PBB -0.192 -20.103 -.1903
(-0.100) (-2.783)** (-0.316)
This study also employs the prescriptive public administration VIF=1.719 VIF=1.099 VIF=1.023
theory in public spending, which holds that public expenditure R2 0.271 0.324 0.252
F 2.845 3.677 2.576
is the result of previous spending behaviors (incrementalism). In
(.060) (.027) (.078)
considering past spending behaviors, multiple observations in
D-W 1.829 1.358 2.025
expenditure growth in the past are included in the model. Therefore,
a time-series statistical model is constructed for the United States, Note: Unstandardized regression
*Significant at the .10 level; **
Taiwan, and Guangdong, respectively, for the period 1980-2006,
.01 level, two-tailed test.
which covers the time span of PBB, specified as: R2 = Buse raw-moment R2
D-W = Durban-Watson statistic
SGRt = a + bYGDPtX + b2RtX + b3 PBB VIF = Variance inflation factor
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strategies of spending control were implemented vigorously, while growth,
the U.S. adoption of PBB in spending control, though intended, is more cau
not fully enacted in practice. PBB in Guangdong was not purposely
linked to spending control. In Taiwa
reform h
Table 3 shows the results of regression on the deficit or surplus level. growth,
The models are robust after repeated tests using data from different spending
time frames to estimate the models' parameters. The F tests indicate and the
that models for the United States and Taiwan are statistically signifi- read wit
cant at the .001 level, while the model for Guangdong is statisti- items (e.
cally significant at .107. Tests show that the models do not suffer are not i
severe multicollinearity (all VIFs < 3.004). The Durbin- Watson ture leve
statistics and related tests indicate that the models may not suffer
autocorrelation. PBB has
been exp
Results for the deficit or surplus level are equally diverse as those explain w
for the spending growth rate. PBB may reduce the deficit or surplus mental a
level in the United States (p < .001), but such impact disappears in 2006), m
Taiwan and Guangdong. Interestingly, the results show a posi- and to r
tive relationship between PBB and the deficit or surplus level in increase
Guangdong. This suggests that the implementation of PBB propels,
not reduces, the spending level in relation to revenue and GDP, The fore
or that PBB reduces the revenues collected in relation to expen- countrie
ditures. Either way, PBB appears to increase the budget deficit in mentatio
Guangdong. formal l
critical i
The findings seem to provide evidence that PBB has gradually agencies
become an essential part of administrative practice in the U.S. and resp
federal government, indicating that the performance-based reform political
strategy may affect the deficit level. A recent study shows that a rela- it also pr
tively large number of federal managers use performance informa- support
tion in making resource allocation decisions, and they have adopted perform
performance-based practices in management (Newcomer 2007).
Although these practices have little impact on curtailing expenditure Strong e
PBB imp
the law
Table 3 Regression Results for the Deficit or Surplus Level
impleme
U.S. Taiwan Guangdong nections
Intercept -4.091 -1.964 0.432 operatio
(-3.278)*** (-2.800)*** (0.399) ing the
GDPt1 -0.043 0.159 0.030 perform
(-0.237) (1.727) (0.648)
tion system).
VIF=2.256 VIF=1.570 VIF=1.069
E -0.110 -0.074 -0.085
(-1.631) (-3.026)*** (-1.986)* Strong intent and effort to link performance results with resource
VIF=1.421 VIF=3.004 VIF=1 .869 allocation decision making, as shown in Taiwan, also appears impor-
R 0.170 0.066 0.021
tant for the PBB impact on spending. The literature indicates that
(2.576)*** (3.016)*** (0.654)
VIF=1.225 VIF=2.933 VIF=1.790 performance measurement is widely used in budget preparation and
PBB 2.736 -0.625 -2.274 examination, but less so in funding decisions by the legislature for a
(4.056)*** (-1.030) (-2.118)** variety of technical and political reasons, including concerns about
VIF=1.733 VIF=1.521 VIF=1.022 the validity of the measurement system and fear that performance
R2 0.607 0.445 0.282 funding is a threat to the political power structure. The threat of
F 8.478 4.417 2.164 these obstacles should be recognized and eliminated in order for
(.000) (.009) (.107) PBB to influence spending.
D-W
Note: Implementation length may also play a role in realizing the PBB
Unstandardiz
Significant at
impact. As the U.S. and Taiwan experiences show, PBB is anthe
exhaus-
.01 level, two-tailed
tive assessment process demanding intensified effort in time and
R2 = Buse raw-mom
D-W = paperwork to define performance, develop data collection systems,
Durban-Wat
VIF = conduct analysis, and evaluate the results. Accounting
Variance and audit
infla
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Also important is the creation of positive incentives to encourage tion of Performance Measures in Public Organizations: An Empirical
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