Performance Budgeting, Motivation, and Incentives

As noted in Chapter 1, many contemporary forms of performance budgeting are part of the broader “managing-for-results” (MFR) approach to public sector reform. Like MFR in general, the primary focus of these forms of performance budgeting is upon motivating agencies to perform better, and in this sense they differ from, for example, classic forms of performance budgeting the primary focus of which is better central expenditure prioritization. This is true of contemporary performance budgeting models which contain one or more of the following elements: agency-level performance targets which are intended to be linked to the level of resourcing provided funding formulas which implicitly set, through the funding formula, targets for the results expected to be achieved agency-level financial incentives, under which good performance by the agency results in higher levels of funding, and poor performance possibly leads to financial sanctions. Motivating agencies to perform better is also important if the full benefits of input control relaxation are to be realized.