Do Expiring Budgets Lead to Wasteful Year-End Spending? Evidence from Federal Procurement

Jeffrey Liebman () and Neale Mahoney
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Neale Mahoney: University of Chicago

Working Paper Series from Harvard University, John F. Kennedy School of Government

Abstract: Many organizations have budgets that expire at the end of the fiscal year. Faced with uncertainty over future spending demands, these organizations have an incentive to build up a rainy day fund over the first part of the year. If demand does not materialize, they must rush to spend these resources on low quality projects at the end of the year. We test these predictions using data on procurement spending by the U.S. federal government. Using contract-level data on a near-universe of federal contracts, we document that spending in the last week of the year is 4.9 times higher than the rest-of-the-year weekly average. Using a newly available dataset that tracks the quality of $130 billion in information technology (I.T.) projects, we show that quality scores for year-end projects are 2.2 to 5.6 times more likely to be below the central value. Allowing agencies to roll over unused funding into the subsequent year can improve efficiency. We calibrate a dynamic model of spending and show that allowing rollover leads to welfare gains of up to 13 percent, and that intermediate policies can achieve a large portion of these gains. We document that the one federal agency that has the ability to roll over unused funding for I.T. projects does not exhibit a year-end spike in spending or drop-off in quality in this category of spending.

JEL-codes: H00 H50 H56 H57 H61 L00 L20 L24 (search for similar items in EconPapers)
Date: 2013-10
New Economics Papers: this item is included in nep-ppm
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Citations: View citations in EconPapers (15)

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Working Paper: Do Expiring Budgets Lead to Wasteful Year-End Spending? Evidence from Federal Procurement (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:harjfk:rwp13-038

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