An Empirical Analysis of the Effects of Performance-Based Budgeting on State Government Expenditures

Abstract

This paper examines the economic effects of the adoption and implementation of performance-based budgeting (PBB) at the state government level. We examine the association between the implementation of PBB and aggregate state expenditures from the General Fund and Other State Funds, and further analyze whether PBB affects combined functional spending: Future-oriented expenditures (Public Education, Higher Education, and Transportation), Social expenditures (Public Aid, and Public Health/Medicaid), Public safety expenditures (Correctional Facilities) and Other expenditures. We find that the implementation of PBB is negatively associated with total expenditures from General Fund and positively associated with total expenditures from Other State Funds. The effect of PBB on combined functional spending is significantly negative for Future-oriented expenditures and Socially-oriented expenditures from the General Fund, but there is a positive relationship between PBB and Future-oriented expenditures (transportation projects) and Socially-oriented expenditures from dedicated Other State Funds. We conclude that PBB is effective in getting state governments to reorganize their spending priorities.