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Abstract The evolution of budgeting processes records the conflicts between various policy-making preferences as well as the outcome of political struggle. Public budgeting is about allocating fiscal resources, which clearly reflects policy tendencies, focal points and priorities of public affairs. Theoretical studies on budgetary decision-making have gone through three stages, i.e. rationalism, incrementalism, and punctuated equilibrium, the last of which explains not only the small gradual changes in budgeting but also the sudden radical ones. Punctuated equilibrium replaced incrementalism as the mainstream theory in 1990s. Abundant empirical evidence from Europe and the United States has supported the punctuated equilibrium theory on budgeting. Then, what about China’s total budgets at all levels and the classification of provincial budget outlays by function? Can they also be characterized as punctuated equilibrium? If so, then what is the reason for this? What are the affecting factors? Theoretical tests and explanations in a systematic manner are still absent in this regard. Although the Chinese institution is different from those of the western world, we do share similarities in the information processing mechanism for policy images and institutional friction, which affects the changes in China’s budgeting. Therefore, China’s budgetary changes could fall into punctuated equilibrium. It is on these grounds that the following hypothesis is made: changes in the total budgeting at the state, central, provincial and locality levels fit with the punctuated equilibrium model, so do changes in the classification of provincial budget expenditures by function; but the degree of punctuation varies at different levels and between different expenditure categories. We analyzed data on the total budgets of the state, central, and local governments and data on budget outlays of 31 provincial units on 12 items of different functional categories, to test whether or not the punctuated equilibrium theory can be applied to China’s budgeting evolution, by using histograms, kurtosis analysis, regression analysis and normality tests. In addition, we used vertical analysis and cross-disciplinary comparative analysis to study the model of shift in budgeting at different levels and in different functional categories, as well as the variance in punctuation degree. Our hypothesis is proved by the analysis. To be specific, punctuations of the central level budgeting are far less than those at the local governments. Punctuation degrees vary between the 12 expenditure categories, and can break down into three range zones: seven categories fall into the first zone,320, covers two categories, i.e. expenditures on national defense and urban-rural community affairs. For most categories of expenditures, the degrees of punctuation are relatively small, which indicates that even though occasional drastic changes might occur on the basis of incremental adjustments, the overall number of times when such reforms happen is quite small with only minor punctuations. Study results show that punctuated equilibrium theory, under the framework of interaction between policy images and policy venues, can be applied to explain the external validity of policy changes, by using attention of organizations and individuals and the institutional friction mechanism.
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