Hood and Piotrowska (2021) demonstrated that meso-level input control of UK public expenditure — the allocation of spending across departments and categories — is gamed through 'creative categorization', the tactical assignment of spending units to administratively consequential categories, with materially large effects. Their paper explicitly leaves open four linked questions: who benefits and who loses from such gaming and its Goodhart's Law effects; how the costs of gaming (to accountability, transparency, and fiscal sustainability) can be weighed against its operational benefits as a flexibility-enabling 'workaround'; which categorical finessing practices are socially or institutionally seen as acceptable 'creative compliance' versus unacceptable gaming, and what formal or informal mechanisms limit or reverse them; and whether gaming of this type can be compared internationally, and if so how. No later work answers any of these questions: the problem remains open.

Background

Goodhart's Law — the observation, originally formulated for monetary aggregates in the 1970s, that once a measure becomes a control target it ceases to be a reliable measure of the underlying quantity — has been documented extensively in two settings: the manipulation of macro-level fiscal aggregates (studied via 'fiscal gimmickry' and creative compliance with fiscal rules (creative compliance meaning practices that keep to the letter of the rules while defeating their purpose), for example Alt, Lassen, and Wehner 2014 on EU countries) and the gaming of output-side performance indicators at the level of individual services (for example Bevan and Hood 2006 on waiting-time targets in the English health system, where providers reclassified patient episodes to meet targets). A standard quantitative proxy in the macro literature is the stock–flow adjustment (SFA), defined as the change in government debt minus the reported deficit; it is intended to capture creative accounting, but it conflates deliberate tactical reclassification with legitimate policy operations such as bank bailouts.

Hood and Piotrowska (2021) addressed a gap between those two strands: the input side of expenditure control at the meso level, i.e. how reported spending allocations to departments and policy domains are themselves gamed. 'Meso-level' here means intermediate between whole-economy aggregates (macro) and local service-delivery budgeting (micro); 'input' means control over the money and resources allocated, as opposed to 'output' control over measured service performance. Drawing on official documents, more than a hundred interviews with key actors, and three case studies (the 'tuck-under' placement of spending into protected categories; Private Finance Initiative (PFI) off-balance-sheet financing, which kept liabilities out of official debt measures; and reclassifications between non-cash and near-cash items under the UK's Resource Accounting and Budgeting framework (the accrual-based system for departmental budgets, which separates non-cash charges such as depreciation and provisions from spending counted as 'near-cash' for control purposes)), they showed that gaming understood as 'creative categorization' — strategic, not clearly illegal reassignment of spending units among natural-language categories that carry different fiscal treatments — was readily observable in the UK between the early 1990s and mid-2010s, at scales running from hundreds of millions of pounds (tuck-unders) to roughly a billion pounds per year (defence non-cash-to-near-cash transfers) to tens of billions (PFI liabilities excluded from debt). They also argued that creating new categories to limit gaming is a two-edged sword, because every new categorical boundary creates new discretionary classification points that can themselves be gamed.

The paper's Goodhart mapping is stated informally in words: once incentives attach to a category, the reported value becomes a blend of the true underlying quantity and a strategic reporting component, so values before and after the incentivization are no longer comparable. The paper further shows that the macro SFA proxy is 'at best a doubtful proxy' for this behavior, because in the UK case near-zero average SFAs coexisted with large meso-level gaming.

In its conclusion, the paper poses the questions it explicitly cannot answer, which together define the current problem: the distributional incidence of input-side gaming, its net evaluation, the social and institutional boundary between acceptable and unacceptable categorical finessing, and its cross-national comparability.

Problem Statement

The problem, as posed by Hood and Piotrowska (2021) at the conclusion of their study of gaming in UK public expenditure control, is to extend the analysis of meso-level input gaming from a single-country demonstration of existence, mechanism, and materiality to a full empirical characterization, by answering four linked questions:

  1. Distributional incidence: Who benefits and who loses from gaming of expenditure numbers and its Goodhart's Law effects — in political terms (which ministries or interests gain budgetary advantage), in administrative terms (which agencies gain usable cash), and in public-policy terms (which service users experience sustained resource changes)?
  2. Net evaluation: How can the costs of such gaming — for accountability, transparency, and fiscal sustainability — be assessed against any possible benefits, notably its operation as a 'workaround' that enables short-term flexibility or smooths unavoidable timing mismatches?
  3. Acceptability and governance: Which categorical finessing practices are seen by relevant actors and institutions as acceptable 'creative compliance' and which as unacceptable gaming, and what formal or informal social, legal, or audit mechanisms serve to limit or reverse such gaming?
  4. Cross-country comparison: Can gaming of meso-level public expenditure input numbers of the type analyzed in the paper be compared internationally, and if so, how, given that macro-level stock–flow adjustments are known to conflate deliberate policy choices with tactical reclassification?

These questions form one overarching objective: to characterize the consequences, evaluation, governance boundaries, and comparability of strategic reclassification in public spending categories, grounded in the creative-categorization mechanism the source paper established. The four questions all concern meso-level input-side reclassification — allocations across departments and categories, not macro fiscal aggregates or output-side performance targets — and are linked aspects of that objective, though each may also be developed as a separable study grounded in the paper's meso-level input-side mechanism rather than a restatement of the question.

References

  1. Hood, Christopher, and Barbara Piotrowska (2021). 'Goodhart's Law and the Gaming of UK Public Spending Numbers.' Public Performance & Management Review 44(2): 250–271. DOI: 10.1080/15309576.2020.1749092. https://doi.org/10.1080/15309576.2020.1749092 (open-access accepted manuscript: https://ora.ox.ac.uk/objects/uuid:e5fe165e-18aa-4d38-b4b3-a24287be19e1)
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