PERFORMANCE BUDGETING IN CHINA: An Institutional Theory Perspective

Budgeting is an institutional process in which policymakers allocate scarce resources to achieve certain political, economic, and social outcomes. The design of a budgeting system usually intends to control the transaction... [ view full abstract ]

Budgeting is an institutional process in which policymakers allocate scarce resources to achieve certain political, economic, and social outcomes. The design of a budgeting system usually intends to control the transaction costs and principal-agent problems so that the general public could hold policymakers accountable for making budget allocation decisions. Over the past few decades,performancebased budgeting (PBB) has been a prominent institutional tool to improve budgeting accountability. However, the changes introduced by PBB in developed countries are not satisfying. Interestingly, PBB has become a very attractive innovation in developing countries in recent decade. This study uses Guangzhou City as a case to explore the motivation of PBB reform in China from a perspective of institutional change. The analysis indicates that PBB in Guangzhou was not adoptedas a result of external pressure or mandates or merely as a symbolic gesture to show the public that the government spends public money responsively. Instead, initiation of PBB in Guangzhou resulted from interpersonal communication and networking and learning among policy makers and budgeters. Moreover, PBB provides an institutional tool to rationalize budgeting decision-making and program management in order to reduce interdepartmental conflicts. This study suggests that adoption of PBB in developing countries requires entrepreneurship, sensitivity to political and organizational constraints, and openness to learning and experimentation.