Improving Public Sector Efficiency

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ISSN 1608-7143 OECD Journal on Budgeting Volume 7 – No. 1 © OECD 2007

Improving Public Sector Efficiency: Challenges and Opportunities by
Teresa Curristine, Zsuzsanna Lonti and Isabelle Joumard*

This article examines key institutional drivers that may contribute to improving public sector efficiency and focuses on one of them in more detail: performance information and its role and use in the budget process (“performance budgeting”).

* Teresa Curristine is a Policy Analyst in the Public Governance and Territorial Development Directorate of the OECD. Zsuzsanna Lonti is a visiting academic in the same directorate. Isabelle Joumard is a Senior Economist in the Economics Department of the OECD. This article was produced for the German Presidency of the European Union.

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IMPROVING PUBLIC SECTOR EFFICIENCY: CHALLENGES AND OPPORTUNITIES

Executive summary
Governments of OECD countries are under pressure to improve public sector performance and at the same time contain expenditure growth. While factors such as ageing populations and increasing health care and pension costs add to budgetary pressures, citizens are demanding that governments be made more accountable for what they achieve with taxpayers’ money. This article briefly reviews key institutional drivers that may contribute to improve public sector efficiency, and focuses on one of them in more detail: performance information and its role and use in the budget process. There is no blueprint for enhancing public sector efficiency. OECD countries have thus adopted diverse approaches to reforming key institutional arrangements, which include: increasing devolution and decentralisation; strengthening competitive pressures; transforming workforce structure, size, and HRM arrangements; changing budget practices and procedures; and introducing results-oriented approaches to budgeting and management. Although the majority of OECD countries have engaged in some institutional reforms, the empirical evidence of their impact on efficiency is so far limited due to: the lack of resources to conduct evaluations; the lack of pre-reform measures of performance; the complexities in measuring efficiency1 in the public sector; and the problem of isolating the effects of specific institutional reforms on efficiency from other external influences. Empirical evidence nevertheless suggests that the following three institutional factors may improve public sector performance: ●

Decentralisation of political power and spending responsibility to subnational governments. Appropriate human resource management practices. In the education and health sectors, there is evidence that increasing the scale of operations may improve efficiency.

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Increasing the use of performance information in budget processes is an important initiative that is widespread across OECD countries. It is part of an ongoing process that seeks to move the focus of decision making in budgeting away from inputs (how much money can I get?) towards measurable results (what can I achieve with this money?).

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OECD JOURNAL ON BUDGETING – VOLUME 7 – No. 1 – ISSN 1608-7143 – © OECD 2007

IMPROVING PUBLIC SECTOR EFFICIENCY: CHALLENGES AND OPPORTUNITIES

OECD countries have reported a number of benefits from the use of performance information (PI): ● ●

It generates a sharper focus on results within the government. It provides more and better information on government goals and priorities, and on how different programmes contribute to achieve these goals. It encourages a greater emphasis on planning and acts as a signalling device that provides key actors with details on what is working and what is not. It improves transparency by providing more and better information to parliaments and to the public, and has the potential to improve public management and efficiency.





OECD countries, however, continue to face a number of challenges with the use of PI in the budget process, including how...
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