TEN YEARS AFTER: THE US CONGRESSIONAL BUDGET AND IMPOUNDMENT CONTROL ACT OF 1974

The reformed congressional budget process is no longer new. This fact alone invites an assessment of the experience of budgeting under the procedures enacted in 1974. But there is a more pressing reason for undertaking such an assessment. Today, there is widespread unhappiness with the congressional budget process. In recent years the deadlines of the budget process have repeatedly not been met, resulting in incomplete budgeting and the proliferation of proposals to abolish or reform the budget procedures enacted in 1974.
Consequently, this paper will first outline the reformed budget procedures and establish the goals of the 1974 Budget Act. The second section assesses whether the goals of budget reform have been achieved. In short, the answer is a negative one. The third section explains why the goals of budget reform have not been met, and the final section evaluates the main proposals advanced for changing the budget process.     

Expenditure Inflexibility in the State Budget: The Fiscal Policy Latitude of the Council of State in Finland

This paper deals with expenditure inflexibility, which has a crucial bearing on the fiscal latitude which the government has in the preparation of the Finnish state budget. The government’s fiscal latitude, i.e. the possibilities available to the government to increase, decrease or change state expenditures is restricted by vari‐ous mechanisms. The source material used in this study consists of budget documents and interviews with officials involved in preparing the budget; use was also made of earlier studies relating to this subject. Our major findings fall into three groups. (i) If the degree of inflexibility is used as a basis for classification, four classes of expenditure can be identified in the Finnish state budget: expenditure controlled by statute, expenditure controlled by agree‐ment, expenditure controlled by authorization and expenditure without formal con‐trol. (ii) In the budget for 1996, 92 per cent of expenditure was controlled in various ways, leaving only 8 per cent that was flexible. The conclusion can be drawn from this that without changing the mechanisms that bind expenditures, the govermment’s ability to alter fiscal policy in the budget of a single year is very limited. In the 1990s the proportion of statute‐controlled expenditures has decreased and the proportion of agreement‐controlled and authorization‐controlled expenditures has increased. Nevertheless fiscal latitude has grown. (iii) The material used for comparison showed that there is a similar problem in other countries, but that the mechanisms governing expenditure inflexibility and the fiscal latitude that governments may enjoy can vary.     

Hardening Budget Constraints: A Cross-National Study of Fiscal Sustainability and Subnational Debt

This study explores the financial sustainability of subnational governments in four different countries. Scholars argue that subnational fiscal capacity helps local governments deliver better public services and provide public goods, which in turn helps to promote economic growth. While administrative control by the central governments contributes to reducing moral hazard from the soft budget constraints, bottom-up strategies to manage fiscal profligacy also need attention. The study first provides understanding about the characteristics of central-local governance and management of subnational government debt of each country. Then, we test our hypotheses regarding local fiscal capacity and administrative control, including political-economic factors that may affect debt spending by local governments. Our findings show that subnational fiscal sustainability improves when the central governments have clear rules to intergovernmental transfers in place and more (market) liberal policies, meanwhile when subnational governments have a more fiscal capacity and less intergovernmental transfers they are able to manage their debt more soundly.     

Budget reform theory: a guideline for successful budget reform ∗

The findings of previous research have enabled scholars to develop theories about what types of things need to be done to create successful budget reforms. The author examines redirection, a budget reform implemented recently in the state of Georgia. He indicates that this reform has been successful at accomplishing its stated goals. The author then reveals that redirection meets most of the recommendations offered by budgeting theory about how to develop a successful reform. In so doing, the author provides the first test of the postulates made by budget reform theorists. The practical implications of the findings are given.     

The effect of fiscal transparency on corruption: A panel cross-country analysis

Both academicians and practitioners have advocated for increased fiscal transparency in government as a means of promoting budget discipline, improving functioning of the public sector, fostering greater accountability, and fighting the global menace of corruption. Despite worldwide calls for greater disclosure, empirical analyses of whether and how fiscal transparency actually affects governance outcomes are still limited. This study draws on public choice and principal–agent theories to demonstrate how public disclosure of budgetary information helps deter government corruption. The data from 95 countries over the period 2006–14 provide evidence that more fiscally transparent countries are perceived as less corrupt. We also find that fiscal transparency matters most at the final stages of the budget process when information disclosure reflects actual government spending. Data also confirm that a Citizens Budget can serve as a strong anti-corruption tool.     

Fiscal Reforms and the Fiscal Effects of Aid in Uganda

Abstract

Uganda implemented public expenditure and revenue management reforms from the early 1990s with specific aims of improving budget planning and aligning aid with fiscal priorities. The dynamic relationship between aid and domestic fiscal aggregates is analysed using a Cointegrated Vector Autoregressive model with annual data for 1972–2008 and quarterly data for 1997–2014. Aid has been a significant element of long-run fiscal equilibrium, associated with increased tax effort and public spending and reduced domestic borrowing. Fiscal reforms have improved aid and expenditure management, contributing to improved fiscal performance in Uganda, with lessons for other African countries.     

Walking the fiscal tightrope: local government budgeting and fiscal stress

This paper discusses the components of local government budget processes and their relationship to fiscal stress. While many cities and counties are suffering from stressful fiscal situations, leading in some cases to bankruptcy filings or other severe measures, their budgets have to be balanced, unlike the federal government and some state governments. Using survey data from a large number of jurisdictions, this paper shows how local governments have developed budget processes which respond to these changing fiscal situations. Governments use computers, collect and analyze many different types of information, and use budgetary information for other management purposes in order to improve productivity. Budget processes are providing good information to local government decision makers which is helping them respond constructively to the fiscal crises of the 1990s.     

A Response to Fiscal Stress: Public Sector Employment Reduction across States during a Budget Crisis

This paper incorporates measurements of the four financial condition dimensions of cash, budget, long-run, and service solvency to explore the link between financial condition and public sector employment among states in the context of the Great Recession of 2008–2009. The finding is that the severity of this economic recession led states to reduce public workers as one type of fiscal response to cope with budget shortfalls. The results suggest that not all dimensions of state financial condition affect public sector employment.     

Do Nasty and Pleasant Surprises Regarding Tax Revenue Explain Spending Drifts? The Case of the Swiss Cantons

This article aims to explain the difference between the expenditure reported in governmental end-of-the-year budgets and the amounts previously forecasted in the approved beginning-of-the-year budgets. We measure how political, financial, and institutional variables affect this spending drift. We focus on two much-debated factors, namely, tax revenue budgeting errors and the stringency of fiscal rules. Our econometric approach uses a panel based on the 26 Swiss cantons covering the period of 1980 to 2011. Results suggest that stringent fiscal rules discourage budget overruns, whereas underestimating tax revenue—i.e., a budgetary “pleasant surprise”—offers the opportunity for some overspending.     

The Fiscal Effects of Aid in Ethiopia: Evidence from CVAR Applications

ABSTRACT

This article explores the fiscal effects of aid in Ethiopia using the Cointegrated Vector Auto-Regressive (CVAR) methodology to model complex long-run and short-run dynamics. We use national data for 1961–2010, including a measure of aid capturing flows through the budget as measured by the recipient. The data suggests three main conclusions on the long-run equilibrium. First, government long-term spending plans are based on domestic sources, treating aid as an additional source of revenue. Second, both grants and loans are positively related to tax revenue. Third, aid is positively associated with spending, with a particularly strong relation between capital expenditure and grants. Overall, our results show that aid in Ethiopia had beneficial fiscal effects.     

Budgeting the work force: Influences,elements, disclosure strategies,and roles

Work force budgeting is a comprehensive view of allocating resources recognizing that expenses flow from the use and remuneration of organizational members. The purpose of this essay is to: examine the influences and elements of work force budgeting; enhance the disclosure of such choices; and, isolate the tension in fiscal oversight of personnel decisions. It is incumbent upon managers to acquire, deploy, and control human resources in the production of public goods and services. An humane and ethical bureaucracy has to meet tests of efficiency and effectiveness. This essay supports the proposition that service delivery goals should guide budget decisions instead of simply having decisions premised upon adding up the cost of existing staffing patterns.     

Biased Budgeting in the Public Sector: Evidence from Italian Local Governments

Abstract

The purpose of this paper is to analyse, in terms of presence, determinants and purposes, the misrepresentation of expected revenues during budget formulation and the misrepresentation of actual revenues during budget execution. To this end, we use six-year panel data from Italian municipalities with populations above 15,000. Our results suggest that overestimations of current revenues are more frequent than underestimations, during both budget formulation and budget execution. In terms of determinants, our results highlight the impact on revenue misrepresentation of both political orientation and fiscal stress. Finally, in terms of purposes, we show that revenue underestimation during budget formulation and revenue overestimation during budget execution may contribute to the formation of surpluses. The former, in particular, may allow mayors to create a ‘war chest’ in non-election years, which can then be used to increase net borrowing on the eve of elections.     

What Should We Do? Public Attitudes about How Local Government Officials Should Confront Fiscal Stress

Despite strong scholarly interest in the topic of fiscal stress, little attention has been paid to understanding how the general public thinks local governments should respond to situations where declining revenues endanger service levels. This study reports findings from a survey of 660 residents undertaken between November 2006 and January 2007 in the US state of Michigan to examine their support for eight potential strategies to cope with fiscal stress in five different local government services. We find that the public has a surprisingly nuanced perspective about these strategies and on their use for different services. Our findings may provide local policymakers with some insights about how to respond to fiscal stress.     

An Evaluation of Performance-Based Budget Reform in Asian Countries

This article investigates the effects of performance-based budgeting (PBB) adoption on the spending of the central government in eleven Asian countries over an 18-year period. The theoretical argument is that PBB does not permanently change the spending structure for various reasons, including but not limited to the lack of clear linkages between performance results and resource allocation. This hypothesis is supported by the study’s results, which suggest that PBB temporarily changes the spending size in some programs. However, such changes are not permanent; there are no structural changes in the baseline budget. These findings suggest that PBB may not be different than other budget reforms.     

A norm for a stabilizing budget policy in less developed export economies

The stabilization problem of an export economy is defined as smoothing the fluctuations in real income resulting from sharp changes in the value of exports. A stabilizing fiscal policy should be contractionary in good export years and expansionary in bad export years. A norm is developed to measure whether fiscal policy achieves this aim. The revenue impact of the budget is hypothesized to be generally stabilizing and the sample results bear out this hypothesis. However, the total fiscal impact is less clearly stabilizing, as expenditure policy may offset the revenue effect and tend to accentuate rather than smooth out fluctuations in real income.     

Refining the Concepts of Territorial Revenue Assignment,Substate Fiscal Self-rule and Territorial Fiscal Balance

Fiscal federalism has offered a template for understanding intergovernmental fiscal relations. Yet when politicians are involved in day-to-day decentralization it may happen that some of the normative elements of fiscal federalism do not fit reality. Substate entities may go beyond the own-source paradigm and have a practical interest in alternative forms of fiscal self-rule. To better understand this pragmatism a threefold stage model of territorial revenue assignment is presented drawing on some insights offered by Germany’s fiscal constitution. Within this framework a reassessment of the role of territorial levels as levels during vertical revenue assignment is undertaken, a new typology of fiscal self-rule is introduced, and finally a theory of multiple territorial fiscal balance points is outlined, including the one based on the real domain of substate own policy-making.     

Reforming Budget ritual and Budget practice: The Case of Performance Management Implementation in Virginia

Abstract

Virginia is accepted as one of the leading examples of performance-based reform among US states. This article reports on some of the key factors that have helped to ensure that these reforms have established performance as a basis for both budget ritual and budget practice. Virginia's strong record of implementation is explained as the result of a consistent legislative basis for reform, effective reform leadership by a core agency, the integration of results-oriented activities into all facets of the financial management process, a focus on high levels of citizen engagement, and an emphasis on ensuring that performance management systems are tailored to be useful.     

Turnover,Trust, and Transfers: An Examination of Local Government Budget Execution

Abstract

Studies of budget execution focus either on the procedural aspects of internal controls and adjustments or the necessity of the changes made in the original budget. Adjustments made on an ongoing basis without undermining the integrity of the budget has been generally seen as a necessary means of creating flexibility while maintaining appropriate controls. In this context, our article addresses one aspect of the local government budget—whether turnover in key leadership and professional position affects the amount of transfer and reprogramming made during the execution process. Based on surveys of municipal budget offices in the Greater Cincinnati area, we report that turnover in some leadership positions does affect budget transfers. This finding also supports the proposition that the stability of key budget roles is an important factor in the budget execution process.     

Citizen participation and the redistribution of public goods

This study investigates whether citizen participation in public budgeting resulted in increased redistributive outcomes when compared with bureaucratic decision‐making. We focused on a specific budget item (i.e., the installation of surveillance cameras for crime prevention) and examined whether participatory budgeting yielded larger budget allocations to low‐income neighbourhoods. Results indicate that such participatory budgeting results in larger budget allocations for low‐income neighbourhoods when compared with allocations produced by bureaucratic budgeting practices. The results also indicate that budgets allocated through citizen participation may be no more or even less effective for advancing public goals. These findings suggest a potential trade‐off between equity and public service effectiveness. Citizen participation improves budget equity, but may be less effective for achieving public goals than bureaucratic decision‐making. To explain this, we offer the ‘social pressure hypothesis’, which posits that social pressure during public‐forum discussions can influence participating citizens to make redistributive decisions.     

Public Value in Politics: A Legislative Budget Office Approach

We use Legislative Budget Offices (LBOs) as both a lens and a test of “public value in politics,” a facet of Moore’s original framework that remains its most contested. We identify two public value roles for LBOs: (1) as a normative-advisory institution, and (2) as a mechanistic-costing one. Through Moore’s Strategic Triangle, we contrast the higher public value contribution of the advisory role, as manifested in the United States, with the costings role as manifested in Canada. Our findings suggest that LBOs enhance both democracy and efficiency and thus show how “public value in politics” can be achieved.