How to waste a crisis : budget cuts and public service reform

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Hugh-Jones, David (2011)
  • Publisher: Department of Economics, University of Warwick
  • Subject: HB

In the aftermath of the financial crisis, governments have proposed sav-ing money by reforming public services. This paper argues that tight budget constraints make reform harder. Governments are uncertain which depart-\ud ments are effective. Normally, effective departments can be identified by increasing their budget, since they can use the increase to produce more than ineffective departments. When budgets must be cut, however, ineffective departments can mimic effective ones by reducing their output. Budget cuts thus harm both short-run productive efficiency, and long-run allocative\ud efficiency. These predictions are confirmed in a panel of US libraries. Low marginal productivity libraries reduce output by more than expected in response to a budget cut, and budget setters respond less to observed short-run output elasticity after cutback years.\ud
  • References (6)

    BBC. 2011. “Pickles in 'bleeding stump' claim.” BBC . URL: Deloitte. 2009. Turning the Tide: Opportunities for Public Sector organisations in an economic downturn. Technical report.

    Dunleavy, Patrick. 1985. “Bureaucrats, Budgets and the Growth of the State: Reconstructing an Instrumental Model.” British Journal of Political Science 15(3):299-328.

    Hood, C. and M. Wright. 1982. “Big government in hard times.” Public administration p. 109.

    Wall Street Journal. 2008. “In Crisis, Opportunity for Obama.” Wall Street Journal .


    Wood, Elizabeth J. and Victoria L. Young. 1988. Strategic marketing for libraries. Greenwood Publishing Group.

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