The Relationship between Budgetary Institutions and Efficiencies: Changes after the Implementation of the Top-Down Budgeting System

Abstract

This paper provides an empirical analysis of the relationship between the top-down budgeting system and allocative efficiencies (budgetary outcomes) in the case of the Korean central government. From the perspective of New Institutionalism, a comparative analysis between the bottom-up budgeting system and the top-down budgeting system was carried out. The results of the analysis confirm the relationships between budgeting institutions, action situations, budgeting participants interactions, and allocative efficiencies. The changes in budgeting rules, and thus in action situations, due to the implementation of the top-down budgeting system led to changes in budgeting participants behaviors and thus in budgetary outcomes. Two behavior patterns—excessive budget requests by departments and huge budget cuts by the central budget office—were both greatly reduced. The resulting budgetary outcomes (allocative efficiencies) were changed. These changes were assessed to be reasonably beneficial in the context of the Korean budgeting situation.