Effect of multidimensional performance appraisal on the structure of local government expenditure

Abstract

In many countries, including China, traditional one-dimensional performance appraisal has led local governments to spend more on economic construction and less on human capital and public services. In 2013, China decided to abandon the traditional bias of performance appraisal. This study aims to analyze the effect of multidimensional performance appraisal on the local government expenditure structure in China. The study collected panel data from 31 provincial administrative regions in China during 2007–2018 for empirical analysis. By assigning different weights to economic-based performance appraisal pressure, livelihood-based performance appraisal pressure, and ecological-based performance appraisal pressure, the study observed the effects of performance appraisal criteria on local government expenditure structure. The results show that: local governments place more emphasis on tasks with higher relative incentive intensity and allocate more expenditures to them; the correlation between tasks affects the proportion of expenditures on related tasks; the basic principle of local government officials in balancing the expenditure structure is to maximize their own utility. They give priority to spending on tasks with high marginal revenue. In addition, this paper also discusses the causes and mechanisms of distortion in local government spending structure. Finally, the paper puts forward corresponding policy recommendations, which provide new ideas for multidimensional performance assessment of local governments.