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Taxpayers as a Disciplinary Mechanism in Governmental Budgeting: The Case of Balloting in School District Budgets

This study examines the influence of taxpayer balloting on budget levels and its relationship with standardized test results in New Jersey school districts. The relation between efficiency, effectiveness, and budget voting outcomes is analyzed over a ten-year sample period. Cost and production functions are jointly estimated, where the two endogenous variables are comparative cost per pupil and weighted test scores. From these regressions, efficiency and effectiveness scores are derived for each school district. Granger causality tests with controls for other factors are then used to determine the presumed direction of causality between efficiency, effectiveness, and voting outcomes.We find a negative relation between the one-year lag of efficiency scores and the current year's effectiveness scores, and vice-versa. This negative feedback loop suggests that cutting costs in one year may have an adverse effect on test scores in the following year, and that higher test scores are followed by more spending in the subsequent year. However, overall, we find that more cost-efficient school districts also tend to be more test outcome-effective. As for voting outcomes, we find that a defeated budget (i.e., "no vote") is negatively related to efficiency, but positively related to effectiveness for the coming school year to which that budget relates. The negative relation suggests that the proposed budget observed by taxpayer's signals inefficiencies that are not cured by remedial actions taken in response to the negative vote, and that the negative vote is instead used as an incentive to improve performance (in lieu of making substantial reductions in the budget).