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

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  • Liebman, Jeffrey B.

    (Harvard University)

  • Mahoney, Neale

    (University of Chicago)

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.

Suggested Citation

  • Liebman, Jeffrey B. & Mahoney, Neale, 2013. "Do Expiring Budgets Lead to Wasteful Year-End Spending? Evidence from Federal Procurement," Working Paper Series rwp13-038, Harvard University, John F. Kennedy School of Government.
    • Handle: RePEc:ecl:harjfk:rwp13-038
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    2. RAITERI Emilio, 2015. "A time to nourish? Evaluating the impact of innovative public procurement on technological generality through patent data," Cahiers du GREThA (2007-2019) 2015-05, Groupe de Recherche en Economie Théorique et Appliquée (GREThA).
    3. Stephen J. Terry, 2015. "The Macro Impact of Short-Termism," Discussion Papers 15-022, Stanford Institute for Economic Policy Research.
    4. Hebous, Shafik & Zimmermann, Tom, 2021. "Can government demand stimulate private investment? Evidence from U.S. federal procurement," Journal of Monetary Economics, Elsevier, vol. 118(C), pages 178-194.
    5. Stuart Baumann, 2019. "Putting It Off for Later: Procrastination and End of Fiscal Year Spending Spikes," Scandinavian Journal of Economics, Wiley Blackwell, vol. 121(2), pages 706-735, April.
    6. Jean Barrot & Ramana Nanda, 2016. "Can Paying Firms Quicker Affect Aggregate Employment?," Working Papers id:11119, eSocialSciences.
    7. Jean‐Noël Barrot & Ramana Nanda, 2020. "The Employment Effects of Faster Payment: Evidence from the Federal Quickpay Reform," Journal of Finance, American Finance Association, vol. 75(6), pages 3139-3173, December.
    8. Fitzenberger, Bernd & Furdas, Marina & Sajons, Christoph, 2016. "End-of-year spending and the long-run employment effects of training programs for the unemployed," ZEW Discussion Papers 16-084, ZEW - Leibniz Centre for European Economic Research.
    9. Stuart Baumann, 2015. "Putting it off for later," Edinburgh School of Economics Discussion Paper Series 260, Edinburgh School of Economics, University of Edinburgh.
    10. Raiteri, Emilio, 2018. "A time to nourish? Evaluating the impact of public procurement on technological generality through patent data," Research Policy, Elsevier, vol. 47(5), pages 936-952.
    11. Spagnolo, Giancarlo & Decarolis, Francesco & Iossa, Elisabetta & Mollisi, Vincenzo & Giuffrida, Leonardo, 2016. "Buyer Quality and Procurement Outcomes: Explorative Evidence From the US," SITE Working Paper Series 41, Stockholm School of Economics, Stockholm Institute of Transition Economics.
    12. Jens Dietrichson & Lina Ellegård, 2015. "Institutions improving fiscal performance: evidence from Swedish municipalities," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 22(5), pages 861-886, October.

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    More about this item

    JEL classification:

    • H00 - Public Economics - - General - - - General
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
    • H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems
    • L00 - Industrial Organization - - General - - - General
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures

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