Can Democratic Governments Save? Experiences of Countries with Budget Surpluses

It has long been held that it is difficult for advanced democracies to achieve and sustain continued fiscal restraint. The benefits of such restraint are diffuse, and as a result restraint will generally lose out to spending increases and/or tax cuts that are supported by organized political agents. However, our study of other nations that have achieved budget surpluses makes the case that it is possible for an advanced democracy to achieve consensus on the need for continued fiscal restraint during a period of surplus. To some extent, the design of budget processes in these nations has played a critical role in encouraging fiscal discipline. But even more importantly, these nations demonstrate that ideas matter and that the ability to sustain fiscal discipline is related to the ability of decision makers to reframe the budget debate in terms of broader national goals. However, it is unclear how long this new consensus will last, and many competing policy ideas wait in the wings to spring forth when economic and political circumstances shift.     

Budgeting in Slovenia During the Democratic Transition

Slovenia represents an interesting and important case in the study of comparative budgeting in post-socialist countries during democratization and economic reform. Compared to Hungary and other nations in the region, Slovenia has had more budget stability and has maintained fiscal balances through shared political norms and strong ministerial guardianship. Political culture, institutional capacity, and the nature of governing coalitions all affected budget outcomes. In general, Slovenia has moved more quickly to reform its budgetary institutions and processes but still faces a range of difficult budget issues and choices.     

中国地方财政稳定机制研究

传统财政理论认为,中央政府是稳定政策唯一合适的承担者,然而,Gramlich得出地方政府的财政政策至少在短期内是有效的结论,并提倡地方政府实施稳定的财政政策。本文利用1995—2008年中国30个省、市、自治区(西藏除外)的财政收支面板数据和GDP面板数据,运用固定效应模型和Prais-Winsten PCSE方法实证分析了地方财政收支行为与宏观经济波动的关系,得出在宏观经济处于繁荣阶段时,地方财政收支违反了"逆周期"操作规则,是"顺周期"的结论。认为,地方政府职能转变不到位,财政纪律松弛,财政约束缺失,以及《预算法》的缺陷是导致"顺周期"的原因。为此,本文最后提出了通过建立地方财政预算稳定基金和中期预算制度,修订预算法等相关措施来构建中国地方财政稳定机制的设想。     

The OMB Budget Examiner and The Congressional Budget Process

This is the second of a two-part retrospective on the evolving role of the OMB budget examiner. The examiner has become more active in negotiations with the legislative branch and tracking the legislative status of various fiscal measures. A new central budget management system was created to monitor appropriation bills. The OMB budget examiner has also been increasingly used to provide information for advocacy purposes before Congress and the public. The institutional effect on OMB of these changing roles is examined and suggestions for organizational reform are made.     

THE POLITICS OF MICROECONOMIC REFORM: STRUCTURING A GENERAL MODEL1

Abstract: This paper examines the current endeavours to render the Australian economy more economically efficient. While the case for microeconomic reform is clear in economic theory, Australian public policy analysts are less sanguine about the possibilities for its long-term success. This paper seeks to develop the parameters of a simple general model to explain both why microeconomic reform proposals are dominant today on the Australian policy agenda and, more importantly, what the conditions are for their success or failure. This general model provides a framework that will allow further elaboration in case studies of particular episodes of microeconomic reform.
The paper concludes pessimistically; micro-economic reform has been subsumed into the normal political agenda contests of Australian party politics. The pressures of such "politics" inclines Australian reforming towards incrementalism, rather than the Simon-style rationalism implicit from micro-economics. This mode of policy implementation will inhibit microeconomic reform in the longer term.     

Redistribution in a political union: The case of the EU

A key function of centralized budgets in federal and political unions is to act as an equalizing mechanism to support economic and social cohesion. This is also the case with the European Union's (EU) budget, which operates as a redistributive mechanism that counteracts the cross-national and cross-regional inequalities created by the single market. Despite the limits on cross-national redistribution imposed by a centrifugal system of representation, the net fiscal position of member states – what they pay to the EU budget minus what they receive from it – is very diverse and has changed quite remarkably over the last decades. In this paper, we investigate how and why the net fiscal position of each member state toward the rest of the EU changes over time. We develop a novel panel dataset (1979–2014) to study how key national and EU-level political and economic variables affect the EU redistributive dynamics. We find that redistribution via the EU budget primarily targets developments in inequality within EU member states, and that an increase in domestic unemployment may also improve the country's fiscal balance. Moreover, we find that voting power in the Council is unrelated to a more positive fiscal balance. However, we find that governments with a centre-right profile are in general more successful in improving their redistributive position vis-à-vis the other member states. This may create a problem of budgetary ‘rent extraction’.     

Rules and Flexibility in Public Budgeting: The Case of Budget Modernisation in Australia

This paper explores the features of public budgeting that make it resistant to efforts to balance central oversight and situational flexibility. Its aim is to help explain why systemic efforts at budget modernisation in the name of ‘devolution’ may have failed to deliver expanded budget flexibility. After defining flexibility, and briefly surveying how it can be inhibited by budget practices using the example of collaboration, the paper applies a taxonomy of general ‘budget rules’ to illustrate the trade‐offs between control and flexibility. It uses an analysis of budget reform in the Australian federal government over the last 30 years to identify a key set of ‘legacy reforms’ – all intended primarily to enable budget flexibility – to show how their design and redesign were purposed as modification to the general rules, and how, ultimately, they were constrained by them.     

CURRENT DEVELOPMENTS IN PERFORMANCE INFORMATION

Abstract: This paper outlines the current state of play in relation to performance information in the Australian Public Service. It highlights the findings of the evaluation of the past decade of management reform in The Australian Public Service Reformed and the Management Advisory Board's Building a Better Public Service in relation to performance information. It outlines some of the recent initiatives at commonwealth level to improve the quality of performance information. It touches briefly on benchmarking (noting that this topic is covered by other papers at the same session and at the conference). It sets out the rationale behind the recent changes to annual reporting requirements for commonwealth departments: to provide parliamentarians with more focused information and reduce unnecessary duplication and paper overload. Reports so far have tended to confirm the success of this strategy, with some modifications required to provide more detail in agencies' documentation provided at budget time. It sets out the findings of the recent Department of Finance paper on the use of evaluation in the 1994–95 Budget—in summary, some 75% of proposals for new spending or savings in the budget were influenced by the results of evaluation. Finally, it makes some observations about the success of the Australian system of making public servants responsible for outcomes as well as outputs, and suggests that this is in part the reason why we have been able to make our evaluation strategy stick.     

Pension Reform and the Fiscal Policy Stance

The increased budget deficit caused by the privatization of a public pension plan does not imply a relaxation of the stance of fiscal policy. The reform's impact on the fiscal stance and national saving depends primarily on its effect on the sum of explicit and implicit public debt and on the postreform payroll tax and private system contribution rates. Its impact also depends on the difference between the rate of interest on implicit and that on explicit public debt, among other influences. Pension privatization, if not offset by fiscal consolidation, can loosen the fiscal stance in some circumstances.     

Budget Process Reform: Waiting for Godot

The unraveling of the budget process described by Irene Rubin will have extraordinary consequences for the long-term budget outlook facing the nation. The retirement of the baby boom generation will prompt unprecedented and unsustainable structural fiscal imbalances for decades to come. Early policy action on the spending and revenue sides of the budget is critical to avert fiscal and economic crisis and to phase in changes in order to avoid precipitous and politically perilous actions in the future. Yet such actions constitute what amounts to a politically unnatural act, as one generation of political leaders is asked to make sacrifices in current policies benefiting future generations. Budget process reforms can serve to highlight the salience of these issues and help deal with the significant political hurdles faced by decision makers in making these intertemporal budgeting trade-offs. Ironically, the need for budget rules and processes has intensified as policy makers have become more vulnerable to polarized political parties, ever more watchful media, and mobilized interest groups. Budget rules and processes can help policy makers cope by protecting their ability to make the hard choices that will be necessary. The pressures for budget process reform will accelerate as the current financial crisis increases near-term budgetary pressures, promoting greater alignment between near-term and long-term fiscal problems.     

Reinvention and retrenchment: Lessons from the application of the New Zealand model to Alberta,Canada

Is New Zealand a model for “reinventing” government and cutting spending? The government of Alberta, Canada, consciously replicated significant elements of the New Zealand model to attain fiscal balance and public sector reorganization, including the core element of restructuring institutions to change individual behavior. Despite broad similarities in policy content and outcome, differences in the specific content of policy and the politics of policy implementation led to differences in the sustainability of reform and the location of budget cuts. Alberta's Progressive Conservative party emphasized expenditure cuts where both the New Zealand Labour and National parties emphasized government reorganization and the introduction of market mechanisms. Contrasting these efforts to balance budgets and reinvent government suggests that there is considerable variation in the “model,” and that left governments in general are probably more likely to pursue and succeed at the reinvention of government, while stinting fiscal balance. Right governments, on the other hand, are more likely to achieve short-run fiscal balance at the expense of successful reinvention. In turn this suggests that while the partisan orientation of the reforming party matters, neither has an ideal policy mix for long-term fiscal stability. Alternation of governments may provide the best policy mix.     

Budget Redirection in Georgia State Government

Budget redirection in Georgia state government represents a change from the expectation of continuous budget growth to an expectation that budget expansion will be accompanied by compensating budget reductions through an ongoing process of priority assessment. Its essential features are: the requirement that state agencies identify a minimum of 5 percent of their current year's budget which becomes the primary means for funding new programs and services in the coming fiscal year; and a limit, based upon revenue projections, on the amount an agency may request above the current year's budget. Like budget reforms in any era, it emanated from a combination of fiscal, managerial, and political objectives.     

Budgeting during a Recession Phase of the Business Cycle: The Georgia Experience

This article describes the impact of the nation-wide recession on Georgia revenue and spending decisions in the 2002 and 2003 fiscal years. The state's strong economy and conservative revenue estimating practices historically provided a hedge against revenue shortfalls during a recession phase of the business cycle. However, when state revenue collections for FY 2002 were 5 percent less than collections for the prior fiscal year, several gap-closing measures became necessary, including state agency spending reductions and substitution of bond proceeds for tax revenues. These revenue and expenditure gap-closing measures were intended to enable the governor to achieve his policy initiatives while maintaining a balanced budget. The state's Rainy Day Fund remained full and was held in reserve for budget balancing in FY 2004, if necessary. Budget balancing during the current recession has been made possible by the state's practice of not overcommitting to program increases and tax cuts during the expansion phase of the business cycle, and by effectively framing the issue of fiscal restraint.     

Is The National Budget Controllable?

Previous scholarly analyses of national spending have shown a penchant for incre-mentalism in interpreting changes. They have also focused almost exclusively on annual national outlays or annual expenditures. This article argues that, in many cases, budget authority figures provide a better basis for analyzing the national budget. The author gathered annual budget authority (BA) figures from fiscal years 1969 to 1993 and used this BA data for an empirical test of budget controllability. If the national budget has or has not been controlled in the recent past, then it should help us to judge whether or not it is controllable now. Five potential major budget interventions from fiscal year 1980 to 1993 were tested using an interrupted time-series and two regression models. Different intervention results are anticipated depending upon whether one has a policy perspective that is incrementalist, international systemic, or domestic political. The analysis provides more support for the domestic political perspective than for incrementalist or international systemic views. Budget authority was found to be superior to outlays for linking budget results to policy decisions. The national budget responded appropriately to policy decisions in the recent past. In this sense, the budget was controlled and we should view it as controllable.     

Public Enterprises and the Budget in Developing Countries

Public enterprises have a substantial fiscal impact in developing countries. This has led to the enterprises impinging on the budgetary process of the government while public enterprises are burdened by budget policies and macroeconomic policies. Such difficulties may necessitate the restructuring of public enterprises, either through privatization or reform to make them more competitive with the private sector.     

The Role of the European Union Budget in View of EU Enlargement

What is the role of the European Union (EU) budget in the upcoming EU enlargement? This article attempts to answer this question by focusing on the EU budgetary system before and after the enlargement. The analysis of the EU budget helps us understand the political and economic philosophy as well as the practical achievements of the European construction. The upcoming enlargement urges the elaboration of a new vision of Europe, its missions and democratic institutions, and the power sharing between the EU and its member states, with a consequent major reform of EU fiscal and budgetary discipline.     

Budget Transparency, Fiscal Performance, and Political Turnout: An International Approach

This paper attempts, for the first time, to assess the relationships between budget transparency, fiscal situation, and political turnout using a comparative international approach. With this aim, the authors build a comprehensive index of budget transparency encompassing 40 budget features based on international standards for a sample of 41 countries. They find a positive relationship between national government fiscal balance and budget transparency: The more information the budget discloses, the less the politicians can use fiscal deficits to achieve opportunistic goals. The univariate analysis shows a positive relationship between political turnout and transparency. This result gives some evidence of a positive answer to the question raised by James Alt and David Dreyer Lassen: Does transparency affect political outcomes such as turnout? To some extent, that the more transparent the budget reports are, the more incentives people have to vote. With respect to three variables—transparency, government fiscal balance, and electoral turnout—three clusters of countries arise: low transparency–fiscal imbalance, low transparency–small fiscal imbalance and high transparency–fiscal surplus.     

Making rules credible: divided government and political budget cycles

Political budget cycles (PBCs) can result from the credibility problems office-motivated incumbents face under asymmetric information, due to the temptation to manipulate fiscal policy to increase their electoral chances. We analyze the role of rules that limit public debt, because borrowing is a necessary condition for aggregate PBCs. Since the legislature must typically authorize new debt, divided government can make these fiscal rules credible. Commitment is undermined by either unified government or imperfect compliance with the budget law, which can help explain why PBCs are stronger in developing countries and in new democracies. When divided government affects efficiency, voters must trade off electoral distortions and government competence.     

The Federalism Debate

These papers examine current Australian federalism from the perspectives of an academic and a practitioner. Both acknowledge the opportunities arising from the current White Paper process, as well as challenges in the face of substantial cuts of proposed funding from the Commonwealth to the States. They insist upon the need for renewed commitment to the idea of federalism, and the importance of sustainable fiscal arrangements within the federation. Challenges in Reforming Australian federalism reminds us of the kind of federalism operative in Australia – concurrent, not coordinate – and develops reform proposals accordingly. Ten Steps to a Better Federation offers a range of ideas from a former state premier, drawing on his experience as both a participant at Council of Australian Government (COAG) and, later, Chair of the COAG Reform Council.     

China's Local Political Budget Cycles

This article examines the political budget cycles in Chinese counties. The shift to a more performance-based cadre evaluation and mobility system during the reform era has created an incentive structure for local leaders to increase government spending at strategically important time points during their tenure to enhance the prospect of official promotion. Such expenditures help local leaders to impress their superiors with economic and political achievements, especially those visible and quantifiable large-scale development projects. At the same time, economic and fiscal decentralization increased the capacity of local leaders to influence government budget expenditures as the need rises. The hypothesized curvilinear relationship between a leader's time in office and increased spending was tested using a comprehensive data set of all Chinese counties from 1997 through 2002. The panel data analysis shows that growth in local government spending per capita is the fastest during a leader's third and fourth years in office.