The role of the budget process in promoting public sector innovation

As OECD countries face continuing pressures to do more with less, public sector innovation increasingly offers a means of improving performance across government. Drawing on the OECD’s extensive research on budgeting reforms across member countries, alongside in-depth case studies, this chapter examines the impact of budget processes and particularly the role of central budget authorities (CBAs) in supporting public sector innovation. The chapter considers how strategic outcome goals, fiscal frameworks, spending reviews, financial incentives, flexibility and performance management can serve to support (or hinder) innovation. It considers what conditions need to be in place for fiscal austerity to give rise to innovative ways to reduce spending, and how funds and other incentives can be used to encourage innovation. It considers the balance between granting the flexibility line agencies need to pursue innovation and the need for fiscal accountability, and the role of performance management and evidence in finding that balance. It concludes with some measures that budget agencies should consider in order to sustain public sector innovation.