The Study Of Zero-based Budget's Impact On Budgeting Slack And Budgetary Ratchet Effect

Reform of the department budget is a progressive one. Although, there have been 10 years since the reform was widely implemented from 2000, the way of reform is still long. This is a indispensible road to establish a modern public finance, and improve the efficiency of government. Both in theoretical circles, and the aspects of practice, the zero-based budget is considered one of the best budget models. Then, since the reform of department budget in China is implemented, is the zero-based budgeting helping improve the compiling efficiency of our budget? This paper attempts to examine whether Zero-based budgeting exerts its function effectively, from the perspective of whether Zero-based budgeting affects budgetary compiling slack and ratchet effect, We must not only recognize the reasonability of this zero-based budgeting method , but also realize the detailed results of the implementation of zero-based budgeting in the specific conditions of our country. Only through constant practice, reflection, further practice, can the reform of department be propelled to the root, and continuously developing.Zero-based budget is the main mode of departmental budgets, which proceeds from the real needs to determine the budget of expenditure. However, as Ma Jun, Ye Juanli (2004) has pointed out in their article, China's zero-based budget also faces many difficulties and setbacks, and is not generally successful. China's zero-based budgeting has two significant features: First, the implementation of zero-based budget is to address the financial tension, budgetary control and other issues, in the region or sector; Secondly, zero-based budgeting are more or less losing the original taste. Although some province has adopted this method, they still can not get rid of the base-plus-growth budgetary model in the past. Therefore, it can be said that Chinese zero-based budgeting is a zero-based budgeting with its own characteristics.Budgeting slack is about overestimating the expenditure, and determining the budget of expenditure above the real demand while budgeting. In the planned economy, the budget generally uses the base-plus-growth method. The annual targets of production in the enterprise is based on the previous year's actual production, if corporate performance is better, then the head of the organization will increase the next performance standards, and thus propel the budget standards continuously forward. The standards rise with the increasing performance. This trend is called ratchet effect. Therefore, in theory, zero-based budget should lead to a decline in the degree of budgeting slack and ratchet effect, however, the results of this paper, find that the implementation of zero-based budget has on significant effect on budgeting slack, and instead elevates the budgetary ratchet effect significantly.This paper, from the perspective of whether Zero-based budgeting affects budgetary compiling slack and ratchet effect, examines whether Zero-based budgeting exerts its function effectively. By analyzing 217 dates of 31 provinces during 7 years, we find that Zero-based budgeting does not evidently curb the budgetary compiling slack, and elevate the budgetary ratchet effect significantly, which indicates Zero-based budgeting has not been functioning as expected, and department budget still have a hard and long way to go.