Cutback Management, Fiscal Stability, and Fiscal Outcome

감축관리, 재정 안정성 및 재정 성과

(Purpose) Decision makers attempt to adopt strategies in order to treat the sensitivity of state budgets and stabilize the budgets throughout changes in the business cycle. Particularly, during times of fiscal stress or scarcity, public organizations have faced the necessity of cutbacks and implemented cutback management. However, there is little research about the effectiveness of cutback management. Thus, this study examines the impact of cutback strategies on spending stability and budgetary prerformance by using the data set of U.S. state governments from 2001 to 2013. (Design/methodology/approach) In my analysis, the ordinary least squares (OLS) model with random effect are used to see how cutback management affects total expenditure volatility and fiscal outcomes. Further, interaction terms between cutback management and state government savings as well as between cutback management and fiscal severity are also included in the analysis. (Findings) I find that cutback management strategies result in negative budgetary performance, which indicates that they are not generally effective. However, targeted cuts play a role in stabilizing expenditures in the short-term. Interestingly, this study finds that cutback management shows different outcomes when the cutback strategies are implemented in different contexts in terms of reousrce levels and fiscal severity of state governments. (Research implication or originality) This study shows that implementation of cutback management needs to consider other conditions of the government such as resources (savings) when the cutback is employed. State with higher levels of savings should accompany either the across-the-board or the targeted cuts with spending stability. Moreover, this study suggests that governments need to consider fiscal severity when cutback management is employed. In addition, in terms of short-term fiscal outcomes, states with a high level of fiscal severity need to employ targeted cuts for improving fiscal outcomes, but states with a higher level of fiscal severity are encouraged to implement the across-the-board cuts for fiscal outcomes in the longer term.