The association between budget inaccuracy and technical efficiency in Australian local government

Abstract

IMPACT Little is known about the effect of budget inaccuracy on technical efficiency and financial resilience. To remedy this gap, we employed a six-year panel of data to conduct various econometric estimations. We found that budget inaccuracy did indeed lead to worse technical efficiency outcomes. Further investigation revealed that the cause of the inaccuracy was largely beyond the control of the local government authorities, suggesting a limited ability to mitigate the problem independently. As a result, it seems that co-operation from higher tiers of government will be required to address this problem and ensure that local governments can operate more efficiently. ABSTRACT Budgeting is a valuable anticipatory tool, able to support technically efficient production, manage financial vulnerability, and increase financial resilience. However, inaccuracies in the budgeting process can undermine these objectives. The authors investigated the sources of budget inaccuracy and the consequences for technical efficiency, employing a six-year panel of Australian local government data. The results suggest a reduction in technical efficiency of 0.6% for every 1% increase in expenditure inaccuracy.