Performance budgeting: effects on government debt and economic growth

ABSTRACT

This article examines the effects of performance budgeting on government debt and economic growth rates. The results show that countries with a higher share of ministries using performance targets in budget negotiation tend to have lower government debt and higher GDP growth rates. A simple fixed-effect model shows similar results. The evidence suggests that these results hold only in those countries with relatively lower corruption.

KEYWORDS:

• Performance budgeting
• government debt
• economic growth
• corruption

JEL CLASSIFICATION:

• H61
• H63

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

¹ For more information, check http://www.oecd.org/gov/budgeting/internationalbudgetpracticesandproceduresdatabase.htm

² The survey also asks about the likelihood of programme elimination, budget cuts, wage cuts and career damage for not meeting the performance targets. However, in most countries, these outcomes rarely happen, and consequently there is not enough cross-country variation for comparison.

³ I use these variables as conveniently compiled by the Quality of Government Institute data (http://qog.pol.gu.se/data).

⁴ Alternatively, one could define PB more broadly spanning from overall fiscal discipline of a government to performance management of institutions and individuals. (Arizti et al. 2010: Chapter 1)

⁵ The standardized coefficient of PB for government debt is −0.2006 with p-value 0.0616. The standardized coefficient of PB for GDP growth rates is 0.7192 with p-value 0.0015.

⁶ For more details on CPI, see http://www.transparency.org/research/cpi/overview.