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- Herausgeber: John Wiley & Sons
- Kategorie: Fachliteratur
- Serie: Bryson Series in Public and Nonprofit Management
- Sprache: Englisch
Public budgeting structure, process, legal framework and policy with examples from industrialized and developing countries Public Budgeting in Context examines budgeting at all levels of U.S. government--federal, state, and local--and in a sample of governments around the world. The book assesses the context of public budgeting in these governments, especially the legal foundations for its practice and how the process and final budgets are impacted by governance structures, laws, various budget actors and different branches of government. The author presents focused attention on the influences on government budgets of the executive, legislative and judicial branches of government, the bureaucracy, the public and the media. In light of worldwide fiscal malaise, especially during and since the Great Recession, this book illustrates the heightened complexity of the budgeting environment that pervades all governments today--industrialized or developing, large or small. For those who like to dive into the details, the book presents numerous examples of public budgeting as practiced and points to the wealth of data available for analyses of the budgetary context and process, budget shares and results regarding virtually any government of interest. Chapters cover the constitutional and statutory provisions for budgeting in selected governments. Budget and policy agenda setting and executive leadership, legislative budget powers and the influence of the judiciary on modern government budgets are exposed. Budget execution requirements of the bureaucracy, the input of customers, clients and citizens to government budgets, and media influences on public budgets and agencies are highlighted. Budget mechanics--budget types, formats, timelines and reforms--are introduced and compared. Taxes and intergovernmental revenues are considered, with predominant tax choices at every level of government in the United States and those in a select, developing country represented. The book introduces an emerging method for investigating the outcomes of government spending--human rights budget analysis--and includes as an example the assessment of budget reform and results of public health spending in one selected government. Highlights of Public Budgeting in Context * Offers a comprehensive text for understanding public budgeting in governments of a variety of contexts and capacities and across different levels * Written by a noted expert in the field of public budgeting and financial management * Contains illustrative examples from industrialized and developing countries * Guides to innumerable datasets with information about governments and their budgets * Includes a companion website filled with templates for budget and fiscal analysis Unravel the complex issues of modern public budgeting using this unique presentation of its practice in a variety of governments in the U.S. and a select sample from around the world.
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Contents
Preface
Acknowledgments
About the Author
Chapter One: Overview of Modern Public Budgeting
What Is a Budget?
Macro- and Micro-Budgeting
Public and Private Budgeting
The Role and Size of Government
Modeling the Budgetary Process
Budget Principles
Conclusion
Discussion Questions
Notes
References
Chapter Two: Budget Foundations in Selected Countries
Developing Versus Industrialized Countries
Comparing Budgeting Systems
Conclusion
Discussion Questions
Notes
References
Chapter Three: Budget Law and History of the US Federal Government
Early Budgeting
An Executive Budget Process Is Born
Congress Strives for Credibility
Budget Balance and Management Improvement
Then and Now, Budget Numbers
Adherence to Rule of Law
Conclusion
Discussion Questions
Notes
References
Chapter Four: Budget Foundations in US States
The Fiscal Landscape of States: Two Centuries of Growth
Legal Foundations for State Budgeting
Credit Ratings, GASB Standards, and Professional Guidelines
Conclusion
Discussion Questions
Notes
References
Chapter Five: Budget Foundations in US Local Governments
The Multiplicity and Responsibilities of Local Governments
Local Government Powers
Local Government Fiscal Stress and Bankruptcy
Conclusion
Discussion Questions
Notes
References
Chapter Six: Executive Leadership and the Budget Agenda
Presidential versus Parliamentary Systems
Strategic Planning and the Budget Process
Public Leadership: Generating a Budget Plan
Executive Leadership in Parliamentary Systems
US Presidential Leadership and Budgeting
Presidential Job Performance
State Executive Leadership and Budgeting
US Local Leadership
Leadership in a Strong Mayor City Government
Conclusion
Discussion Questions
Notes
References
Chapter Seven: Budget Powers of the Legislative Branch
Measuring Legislative Powers in the Budgetary Process
Legislative Budgeting in Select Governments
Legislative Reform
Conclusion
Discussion Questions
Notes
References
Chapter Eight: Public Budgeting and the Courts: Judicial Influence on Economies and Budgets
The Judiciary and the Economy
Courts and Public Policy
The Judiciary and the Budget
Judges, Courts, and Corruption
Conclusion
Discussion Questions
Notes
References
Chapter Nine: The Bureaucracy, Citizens, the Media, and Public Budgets
The Budget-Maximizing Bureaucrat
Budget Execution Practices
Citizens and Budgets
Citizen Participation in US State Budgeting
The Media and Public Budgets
Conclusion
Discussion Questions
Notes
References
Chapter Ten: Budget Mechanics and Reforms
Budget Types
Budget Cycles and Timelines
Best Practices
Budget Reforms
Conclusion
Discussion Questions
Notes
References
Chapter Eleven: Funding with Taxes and Other Revenues
Equity
Efficiency
Adequacy
Transparency
Collectability
Taxes in the United States and Guatemala
Intergovernmental Revenues
Conclusion
Discussion Questions
Notes
References
Chapter Twelve: The Results of Government Spending
Human Rights Budget Work
Government Presence and Prosperity
Government Spending by Function
Social Indicators: Quality of Life
Country Competitiveness
Budget Reform in Italy
Health Care in Italy: Changing Budget Orientation
Budget Institutions, Reform, and Results
Conclusion
Discussion Questions
Notes
References
List of Abbreviations and Acronyms
More from Wiley
Index
End User License Agreement
List of Illustrations
Figure 2.1 World Justice Project Rule of Law Index and Rank, by Country
Figure 3.1 US Revenues, Outlays, and Debt Held by the Public, as a Percent of GDP and by Budget Law Period
Figure 4.1 Standards-Setting and Oversight of Financial Management and Accounting in US Governments
Figure 5.1 National and State Powers in US Federal System
Figure 5.2 Components of City of Atlanta Charter Related to Fiscal Control and Fund Balance Policy
Figure 6.1 Components of City of Atlanta Charter Related to Governance and Mayoral Powers
Figure 9.1 Single Audit for Little Rock, Arkansas, 2012
Figure 10.1 Reader’s Guide to State of Wyoming Department Budget Summary Tables
Figure 10.2 State of Wyoming, 2014 Budget Appropriation, Section 007, Military Department
Figure 10.3 Guatemalan Budget Cycle
Figure 11.1 The Tax Revenue Curve
Figure 11.2 Sample Atlanta, Georgia Property Tax Bill
Figure 12.1 World Economic Forum Global Competitive Index
Figure 12.2 World Economic Forum Global Index, 2013–2014, by Country
List of Tables
Table 1.1 Expenditures as a Percent of GDP, by Country and Function
Table 1.2 Number of Countries by Measure of Government Size, 2012
Table 2.1 Social Indicators: Selected Countries
Table 2.2 World Bank Classification of Countries by GNI Per Capita
Table 2.3 Selected Economic and Government Indicators, by Country and Across Years
Table 3.1 Outlays by Superfunction and Function, 1940 to 1980
Table 4.1 US Federal Grants to State and Local Governments, 1940 to 2018 (Estimated)
Table 4.2 State Constitutions by Effective Date of Present Constitution
Table 4.3 US State Government Budget Rules, Number of States by Type
Table 6.1 Presidential Approval Ratings, Trends, First and Last Poll Scores and Averages
Table 6.2 Issues Expressed by Governors as Priority in Next Fiscal Year in State of State Addresses, 2007–2012
Table 6.3 Percent of Governors Mentioning an Issue as Priority for Next Fiscal Year, Before and After the Great Recession and by Governor’s Party
Table 6.4 Percent of Governors Mentioning an Issue as Priority for Next Fiscal Year, Before and After the Great Recession and by State Party Split
Table 7.1 Variables Comprising Wehner (2008) Measure of Legislative Budgetary Power
Table 7.2 State Government Finances, 2011 ($ Per Capita)
Table 8.1 Transparency International’s Scores of Perceptions of Government Corruption, by Country for 2012 and 2013
Table 8.2 Transparency International’s Perceptions of Corruption by Institution
Table 9.1 PEFA Performance Indicators and Grades of Financial Management Practices by Country
Table 10.1 PEFA Performance Indicators and Grades of Financial Management Practices by Country
Table 10.2 Government Performance Project, 2008: State Government Leaders in Money Management
Table 10.3 Open Budget Index for Countries of Interest
Table 10.4 Year of First Government-Wide Initiative Introducing Performance Measures
Table 10.5 Types of PI Produced by Year Government-Wide Initiative Introduced
Table 11.1 Progressive, Proportional, and Regressive Tax Rate Structures
Table 11.2 Comparison of Marginal and Effective Income Tax Rates by Taxable Income Levels
Table 11.3 US State Government Strategies to Speed Tax Receipts into Government, in Percents (
N
= 40)
Table 11.4 US State Government Strategies to Reduce Tax Delinquencies or Increase Compliance, in Percents (
N
= 40)
Table 11.5 Tax Revenues as a Percent of GDP, by Country and Year
Table 11.6 Guatemalan Tax Revenues, 1995 and 2012, Tax Type as a % of Total Tax Revenues
Table 11.7 Federal Grants-in-Aid to State and Local Governments, 1940 to 2011
Table 11.8 Net Official Development Assistance Per Capita, Average by Decade
Table 12.1 Government Indicators by Country, 2012
Table 12.2 General Government Expenditures by Functions, OECD Member Countries, 2011
Table 12.3 Social Indicators by Country
Table 12.4 World Economic Forum GCI Subindex, Basic Requirements: Public Institutions
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Guide
Cover
Table of Contents
Begin Reading
More praise for Public Budgeting in Context
“Katherine Willoughby’s Public Budgeting in Context is an excellent textbook, and much more. Students and scholars alike worldwide will find it an authoritative text on American budgeting and an informed and up-to-date guide to the increasingly diverse research literature. Refreshingly, American practice is placed in an international comparative context. I intend to recommend the book to international colleagues for their teaching and research.”
—James L. Chan, PhD, Professor Emeritus of Accounting, University of Illinois at Chicago; Distinguished Overseas Professor, Peking University, China
“This is a unique and comprehensive book that covers revenue and expenditure institutions and practices at all three levels of the US system using many comparative international examples. Eschewing jargon, it is written in readable and clear language for both introductory and more advanced students and practitioners. It is especially comprehensive, covering for example, the role of the courts in budgeting and efforts of the media and citizenry to make inputs in and monitor budget execution in the US and overseas contexts.”
—George M. Guess, PhD, Adjunct Professor, Department of Public and International Affairs, George Mason University
“This book showcases Professor Willoughby’s original research on budgeting by sovereign and subnational governments and adds a highly recommended, rich texture to our need for a renewed focus on the theory and practice of public budgeting.”
—W. Bartley Hildreth, PhD, Professor, Andrew Young School of Policy Studies, Georgia State University
“This book provides a practical and easy-to-read guide to government budgeting. It equips readers with a functional knowledge of the increasingly complex issues of budgeting at all levels of government in an international context. The text provides common sense examples of public budgeting that give students an understanding of how budget decisions by government shape all aspects of public policy and everyday life. Most fundamentally, it answers the question: Why study public budgeting?”
—Marilyn Rubin, PhD, Program Director, Master of Public Administration, John Jay College, City University of New York
Public Budgeting in Context
STRUCTURE, LAW, REFORM, AND RESULTS
Katherine G. Willoughby
Cover Design: Wiley
Cover Image: © Jon Boyes / Getty Images
Copyright © 2014 by John Wiley & Sons, Inc. All rights reserved.
Published by Jossey-Bass
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Library of Congress Cataloging-in-Publication Data
Willoughby, Katherine G., 1958–
Public budgeting in context : structure, law, reform, and results / Katherine G. Willoughby.
1 online resource. — (Bryson series in public & NP management)
Includes index.
Description based on print version record and CIP data provided by publisher; resource not viewed.
ISBN 978-1-118-91311-6 (pdf)
ISBN 978-1-118-91310-9 (epub)
ISBN 978-1-118-50932-6 (hardback)
1. Budget—United States. 2. Budget—United States—States. 3. Finance, Public—United States. I. Title.
HJ2051
352.4’80973—dc23
2014021832
Dedicated to Dan
Bryson Series in Public & NP Management
PREFACE
This book examines public budgeting across levels of government in the United States and describes the legal foundations for budgeting and its practice in a few industrialized and developing countries around the world. To date, there are few books that investigate public budgeting across numerous governments with different legal, political, economic, and fiscal structures and capacities. The purpose of this book is to provide readers a clear picture of public budgeting in a sample of governments of various structures, fiscal capacities, and from continents all over the world. The reader is introduced to concepts related to the best practice of public budgeting and to several prominent theoretical perspectives about how public budgeting is actually conducted. Readers will be exposed to the obligations of and constraints on governments for budgeting that are produced in constitutions and established in code.
The audience for this book is upper-level undergraduate and graduate students of public policy, management, budgeting, and political science. This is not a nuts-and-bolts guide for conducting public budgeting. Rather, this book should help students to understand the complex and confusing context of government budgeting, especially surrounding the legal foundations for its practice and how the process and final budgets are affected by different governance structures and laws and the roles of various budget actors. Professors teaching in academic programs in these disciplines should find this book useful for engaging students in learning about public budgeting, considering several perspectives, finding public budgeting data, and conducting analyses about government budgets to actively bridge the gap between theory and practice.
In addition to describing the legal strictures that bind public budgets and the budgetary process, the budget powers and roles of important stakeholders of the process—those in the executive, legislative, and judicial branches of government, the bureaucracy, the public, and the media—will be exposed. Governance structures influence the budget powers of legislatures, chief executives, and the judiciary. Culture, tradition, economics, politics, innovation, and information technology affect how each branch operates within a governance structure in determining and making fiscal allocations. In light of worldwide fiscal malaise, especially during and since the Great Recession, this book illustrates the heightened complexity of the budgeting environment that pervades all governments today—industrialized or developing, large or small.
This book is designed to actively engage readers in the study and analysis of public revenues and expenditures, budgeting laws, processes, roles, and reforms. It is novel in providing extensive footnotes to direct readers to government portals, public agencies, budget offices, and to numerous research institutions, foundations, and professional organizations that study, collect, and analyze data on and consult about public budgeting and financial management. These footnotes offer entrée into a tremendous amount of data about government budgeting, providing readers an avenue to investigate public budgeting as practiced in virtually any government of interest to them.
Those who read the following chapters, investigate the information accessible via the footnotes, complete the chapter discussion questions, and conduct a healthy proportion of the exercises offered online, should come away with a good understanding of the context of public budget making. Students should also be able to make comparisons of the budgeting foundations, systems, and practices among governments. Students should gain skills in describing and explaining the technical nature of public budgeting, including the timetables and rules typically used at different levels of government and across a variety of countries; distinguishing political aspects of budgeting with rational methods of resource allocation in a variety of governments; explaining various budgetary reform efforts; assessing the budgetary management and fiscal status and trends of governments; and producing analyses and reports that effectively describe such status to others.
The book begins in chapter 1 by defining a budget, distinguishing between types of budgeting decisions and examining different theoretical perspectives about government budgets and the budgeting process. Chapter 2 presents descriptions of constitutional and statutory provisions for the conduct of budgeting in the selected governments around the world. Chapter 3 describes the legal foundations for budgeting in the US federal government. Chapters 4 and 5 present these foundations for budgeting in American state and local governments. The next section, chapters 6, 7, and 8, covers budget powers and influences of the executive, legislative, and judicial branches of government, with a special look at some of the governments of interest in each case. Chapter 9 regards budget execution in government bureaucracies, the input of customers, clients, and citizens to public budgets, and how the media influences government budgeting. Next, chapter 10 presents the mechanics of the budgeting process—budget types, timelines, and reforms. This discussion is followed in chapter 11 by consideration of taxes and other revenues available to governments, including an articulation of principles of sound tax policy and descriptions of predominant tax choices at every level of government in the United States and those in Guatemala, a developing country included in the sample of interest. Finally, chapter 12 is an accounting of the results of government budgets, recognizing an expanded interpretation of public budgeting as human rights budget work. How do the sample countries compare in these results, given differing governance structures and fiscal capacities? This chapter describes how budget results can be measured and compared across governments and highlights budget reform in one industrialized country in the area of health services.
ACKNOWLEDGMENTS
Writing is lonely, but in this case, I was never alone. I offer sincere thanks to my colleagues and dear friends Marilyn Rubin, Paul Posner, Tom Lauth, Jim Savage, and Jim Douglas. Each of you inspired me to keep studying and writing, as I examined your scholarship and with your encouragement, and by witnessing your continued excitement about the study and practice of public budgeting. To my colleagues and friends at Georgia State University, Cynthia Searcy, Carolyn Bourdeaux, Greg Streib, Jorge Martinez, Bart Hildreth, and Paul Benson: each of you in your own way energized me throughout the process—you have been interested in the book and asked about it, offered to help, and provided good insight. The substance of this book reflects your great support.
I am grateful to our superb graduate students, Sherman Cooper, Sarah Beth Gehl, Keegan Smith, and Sandy Zook. Sherman provided a wonderful start to referencing for the book and drafted sections and tables in chapter 2. Sarah Beth read every chapter, drafted discussion questions and some of the instructional materials, and provided astute feedback about numerous sections. Keegan drafted the section on local government bankruptcy in chapter 5 and developed several of the budget stories included throughout the book. Sandy prepared a prototype for the budget timelines presented in chapter 10. I appreciate the diligence that each of you exhibited in accommodating my requests for research along the way.
I owe genuine thanks to Alison and Emilie—my editors—as well as to my reviewers. You provided excellent perspective, critical analysis, and improving suggestions. Alison and Emilie, thank you for your gentle nudging to finish this book. Your expertise in dealing with writers was evidenced, tested, and worked.
Mostly, this book is a product of my own family foundations. Thank you to my mother and father—you listened daily to my blow-by-blow updates on the book. Your support remained upbeat even as you pressed me to keep an eye on the end result. To Forrest, Hart, and Anna, thank you three for your genuine interest in my work and tenderly coaxing me along the way. Of course, this book would never have come about without Dan. For decades now, whenever I have felt unsteady, I need only reach out my hand and yours is there to hold.
ABOUT THE AUTHOR
Katherine G. Willoughby is professor of public management and policy in the Andrew Young School of Policy Studies at Georgia State University in Atlanta, Georgia. She holds a Bachelor of Science degree in psychology from Duke University, a Master of Public Administration degree from North Carolina State University, and a PhD in public administration from the University of Georgia. Her dissertation, “The Decision Making Orientations of State Government Budget Analysts: Rational or Intuitive Thinkers?” received the NASPAA Dissertation Award for best dissertation in public affairs in 1991.
For the past twenty-five years, Katherine has taught undergraduate and graduate classes at Georgia State University in the Department of Public Management and Policy, including courses about public budgeting and financial management, public management systems and strategies, organizational theory, and research methods. She is a past recipient of her college’s faculty achievement award for excellence in teaching. Her research appears in numerous academic journals, books, monographs, and reports and regards public budgeting and management, performance budgeting, E-governance, and public policy development. Her research foci include comparative budgeting, state and local budgeting and financial management, executive budgeting, budget reform, and performance budgeting. She is coauthor with Kurt Thurmaier of the book Policy and Politics in State Budgeting, which examines the decision strategies and influence of central budget office analysts in the budgetary process of US state governments. She is coauthor and coeditor with Marilyn Rubin of the forthcoming book Sustaining the States: The Fiscal Viability of American State Governments, which presents research by numerous scholars and experts about revenues, expenditures, and debt as well as the future financial and budget prospects of these governments.
Katherine is a research associate with the International Center for Public Policy of the Andrew Young School of Policy Studies at Georgia State University. In this capacity, she has lectured for and consulted extensively with different governments and public officials, budget and finance officers, and agency managers from around the world seeking information about best practices in public budgeting and financial management.
Katherine is a member of the American Society for Public Administration and the Association for Budgeting and Financial Management, the latter of which she chaired in 2009. She is on the editorial board of Public Administration Review and is a fellow of the National Academy of Public Administration.
Chapter OneOverview of Modern Public Budgeting
Struggle and compromise are the very essence of the democratic process and are necessarily reflected in the budget.
—Harold D. Smith, director of the US Bureau of the Budget, 1944
LEARNING OBJECTIVES
After reading this chapter, you should be able to
Define public budgets in several ways
Distinguish between different types of public budgeting decisions
Distinguish between public and private budgets
Understand different perspectives about the role, growth, and size of government
Compare several theoretical frameworks about public budgeting
Conduct your own investigation of government size
Distinguish budget principles applicable to the legislative and executive branches of government
It is an especially important time to study public budgeting and financial management. Grim examples of government fiscal austerity, from the global to local scene, are plentiful right now. In 2012, Greece suffered through the greatest sovereign debt restructuring in history; the United States has had to weather an embarrassing downgrade of its credit since 2011; the American states collectively have closed budget gaps of over $500 billion since 2009; and American local governments have cut more than 500,000 positions since 2008. The official end of the Great Recession is now over four years in the past, but the City of Detroit just declared bankruptcy (July 2013).
In fact, public officials, budgeters, finance ministers and directors, agency department heads, and managers in governments around the world are grappling with how to reform their budget systems in order to provide basic services, sustain current operations, and build and maintain public infrastructure given the very long, slow recovery from the economic downturn that ended in June 2009. Many recognize that governments are simply unable to sustain the levels and mix of services and programs that citizens have come to expect. Government budget decision makers are reaching the end of an ability to budget using (as stated in a March 30, 2012, telephone interview by the author with a state government auditor) “strategic seat-of-the-pants flying,” whereby budget gaps are plugged with one-time funds. According to this auditor from a traditionally poor (fiscally) US state government, “We think (hope) the federal government will increase funding, we hope our revenues will increase, or that our Attorney General has a settlement coming. It has always worked out for the last decade. And, to us, a couple of million dollars is a huge amount of money. Our luck has helped us find ways to fill gaps to keep the status quo.” But how long can governments budget on hope? And for which governments will such luck hold?
This introductory chapter provides an entrée into the complicated and confusing world of public budgeting, beginning with a review of the foundational aspects of budgeting systems, such as governmental structure and size. The chapter addresses the distinctiveness of public (governmental) and private (market) activities, introduces popular theoretical frameworks for better understanding public budgets and budgetary processes, and defines some enduring public budgeting principles. These concepts set the stage for the systems and results of public budgeting that will be examined throughout the book.
The rest of this book describes the foundations for public budgets and budget making in a few countries, with focused attention on those at every level in the United States. Today, the interconnectedness of governments, businesses, nonprofits, and individuals throughout the world makes it vital to understand how different communities function. Governments provide for the rule of law that structures the relationships among individuals in communities. Governments, by taxing and spending, have an impact on the strength of economies and the behaviors of inhabitants. The countries examined throughout this book were chosen to expose readers to examples from industrialized and developing nations, with different governmental structures and various fiscal capacities. This group is a purely judgmental sample of governments that includes the federal, state, and local ones in the United States (North America), one government each from Central (Guatemala) and South America (Brazil), one from Africa (Tanzania), one from Europe (Italy), one government from South Asia (India), and one from East Asia and Pacific (Australia). There has been no predetermination for selection into this sample that any of these governments consistently conducts budgeting either poorly or well.
WHAT IS A BUDGET?
Merriam-Webster’s Dictionary (2013) defines “budget” in several ways:
Chiefly dialect: a usually leather pouch, wallet, or pack; also, its contents
Stock, supply
A quantity (as of energy or water) involved in, available for, or assignable to a particular situation; also, an account of gains and losses of such a quantity (the global carbon budget)
A statement of the financial position of an administration for a definite period of time based on estimates of expenditures during the period and proposals for financing them
A plan for the coordination of resources and expenditures
The amount of money that is available for, required for, or assigned to a particular purpose
These definitions yield important concepts about public budgets and budgeting—a pouch or wallet brings to mind containment, an entity restricted in the amount of loose change or paper bills that can be held within it; stock or supply implies accounting for quantities of things; accounting of gains and losses entails some sort of balancing. The fourth definition presents constraints of time and resources, and suggests a budget as strategic. Irene Rubin (2010), who has written and conducted research extensively about public budgeting, explains that government budgets are different from those of individuals or businesses because they are public or open to scrutiny, they engage public resources, and involve many stakeholders—politicians, government workers, taxpayers, the media, professional groups, clients and customers of government services, and citizens generally—and numerous institutions (budget laws, rules, protocols, and processes).
A couple of things should become apparent to you as you progress through the following chapters. Most important, there is really no way to determine which country or government has the best budget or budgets best. There is no attempt here to ferret out “leaders” or “laggards” in budgeting. There are over two hundred different countries around the world, some with multiple levels of government and with many governments at each level. Each government budgets a bit differently and there are a vast range of revenue capacities and spending categories among them. You will learn that a great way to gain understanding about a country or community, its people and traditions, is to examine its budget. Public budgets—what governments spend money on and the taxes that support this spending—provide a snapshot into the values, commitments, and interests of governments and the people who reside in them.
You will also learn that it is extremely challenging to study and compare governments and their budgets globally because every country is unique—each has its own social, cultural, legal, political, and economic histories and traditions that influence budget development, budget information, and format requirements, tax structures, expenditure categories, and in-country and external relationships with other governments. The CIA World Factbook lists information about 237 “world entities” on its website.1 The July 2013 report on chiefs of state and cabinet members of foreign governments includes information about 198 countries, ranging from Afghanistan to Zimbabwe. This report includes developed (i.e., Australia and Italy) and developing countries (i.e., Brazil, Guatemala, India, Tanzania); governments in transition (i.e., Fiji, Guinea-Bissau, Lebanon, Madagascar, Mali, and Tunisia); those for which the United States has no diplomatic exchanges (Bhutan, Cuba, Iran, North Korea, and Taiwan); territories and colonies (Cook Islands and Bermuda, respectively); and the Holy See (Vatican City). Examining the Factbook is a quick and easy way to glimpse the breadth of governments that exist as well as compare data that characterize country budgets and populations.
For example, Table 1.1 presents expenditures for health, education, and military as a percent of gross domestic product (GDP or total annual production in the economy within country borders) for the countries we will investigate throughout this book. Examining this data, it is clear that the public and private expenditure for health care as a percent of GDP in the United States dwarfs that in all other countries—it is about twice the ratio evidenced in Italy, Australia, and Brazil, more than twice that in Guatemala and Tanzania, and more than four times India’s ratio. Tanzania indicates the highest ratio for education spending, with Brazil, Australia, and United States falling behind. Public expenditures for education as a proportion of GDP trail in India and Guatemala. Military expenditures as a percent of GDP are lowest in Guatemala, followed by Tanzania, Brazil, Australia, and Italy. India’s ratio is six times that of Guatemala; of the countries here, the United States has the largest ratio for this category of spending.
Table 1.1Expenditures as a Percent of GDP, by Country and Functiona
Source: CIA World Factbook, Guide to Country Comparisons, People and Society and Military, available at https://www.cia.gov/library/publications/the-world-factbook/rankorder/rankorderguide.html
Health
b
Date of Information
Education
c
Date of Information
Military
d
Date of Information
United States
17.9
2011
5.4
2010
4.4
2012
Italy
9.5
2011
4.5
2010
1.7
2012
Australia
9.0
2011
5.6
2010
1.7
2012
Brazil
8.9
2011
5.8
2010
1.5
2012
Tanzania
7.3
2011
6.2
2010
1.1
2012
Guatemala
6.7
2011
3.0
2012
0.4
2012
India
3.9
2011
3.2
2011
2.4
2012
a
Definitions of all terms and measures, available at
https://www.cia.gov/library/publications/the-world-factbook/docs/notesanddefs.html
b
According to the
CIA World Factbook,
for the measure total expenditure on health as a percentage of GDP, health expenditures are defined as “activities performed either by institutions or individuals through the application of medical, paramedical, and/or nursing knowledge and technology, the primary purpose of which is to promote, restore, or maintain health.”
c
According to the
CIA World Factbook,
this is a measure of “public expenditure on education as a percent of GDP.”
d
According to the
CIA World Factbook,
this is a measure of “spending on defense programs for the most recent year available as a percent of GDP; the GDP is calculated on an exchange rate basis, i.e., not in terms of purchasing power parity (PPP). For countries with no military forces, this figure can include expenditures on public security and police.”
Table 1.1 provides information on a sample of countries about categories of expenditure and a measure of the size of these expenditures in relation to annual economic production. But the data do not give insight as to who gets services, coverage areas, service quality, or the results from such spending. In the case of health expenditures, you would need to dig further to determine what portion of total expenditures is public and what is private. Also, there is no way to tell if Brazil’s health services are better than Guatemala’s using these data alone. Nor can you determine from the data that people living in the United States are healthier than those living anywhere else. Although you can make some assessments about what governments and their citizens consider important by looking at ratios like these, you would have to collect more and different information to analyze and learn about the effects of these expenditures.
You are probably already realizing that governments will never be able to satiate the public’s needs, desires, or expectations related to addressing community and individual problems. Public budgets represent the choices made about how to spend finite resources. As government budgets have grown to accommodate new and changing policies and problems, these choices have become more difficult to make and the results seem to be more painful to bear. Especially in periods of economic stasis or decline, addressing problems by creating new programs or expanding current ones often means that others must be trimmed, cut back significantly, or even shut down entirely. In such times, new revenue sources must be tapped or traditional revenue sources reconsidered. As you advance through this book, you will learn about how governments attempt to solve public problems and keep up with growing demands within the constraints of foundational laws.
MACRO- AND MICRO-BUDGETING
Studying budgets is difficult because the process of budgeting involves choices that represent the uniqueness and commonness of human behavior in a certain context (Golembiewski and Rabin 1983). In a most elemental sense, public budgets are the result of the judgments of those legally responsible for requesting, recommending, appropriating, and spending public money. Much of the complexity of public budgets today concerns the fact that they represent the culmination of conflict, negotiations, and decisions made among many elected officials, public agency and department heads, managers, staff, program clients, taxpayers, and the public, more generally.
The process of budgeting includes macro- and micro-budgetary decisions.
Macro-budgeting decisions are visible, overarching policy decisions that determine the size and role of government in an economy.
Micro-budgeting decisions are less visible, trade-off decisions made to carry out policies determined by macro-budgeting decisions.
“Macro-budgeting involves setting large policy targets for both fiscal and political purposes” (Thurmaier and Willoughby 2001, 50). Macro-budgeting decisions are those that result in the mix of tax and spending policies determined largely in the political arena and by elected officials. These decisions result in government-wide policy objectives—to advance economic opportunity, to have an educated and healthy citizenry, to maintain safe communities, to foster a clean environment. Elected officials responsible for macro-budgetary decisions receive information from many stakeholders, including high-level political appointees, political parties, business, professional, and other organized interests, the public, and even the media. John Kingdon (1984, 1995) classifies this group as a visible cluster of actors in his theoretical consideration of public policy development. He describes a chaotic policy agenda setting process as a swirl of solutions and problems in which a hidden cluster of actors feeds the visible cluster of actors information about policy alternatives (policies that could address specific problems). The hidden cluster of actors includes bureaucrats, agency and program staff, analysts, and researchers from think tanks, universities, and colleges. Kingdon adds that predictable and unpredictable windows of opportunity afford the chance for the hidden cluster of actors to push certain policy alternatives. In the end, however, everything must come together for success—an identified problem must be matched to the policy alternative, and the political climate must be right for change to occur.
Micro-budgeting decisions are those made to square with or accommodate macro-budgeting ones. Whereas macro-budgeting often entails strenuous debate about a few very high-profile budget issues such as more money for defense versus health care, micro-budgeting entails making tradeoffs among agencies and programs to fulfill policies that have been decided upon earlier (promoting an educated society, for example). The decision makers, mostly in the hidden cluster, take their cues from the macro-budgeting decision arena that has already occurred. That is, it is important for these actors to understand the revenue and expenditure mix that has already been determined at the top in order to figure out how government programs, services, and activities will be conducted. Kingdon’s model of policy agenda setting in the United States has crossover benefits for understanding budgetary processes. His model presents policy development as time bound, yet evolutionary, meaning that there are elements of top-down and bottom-up decision making, and change may come about in very gradual or cataclysmic ways.
PUBLIC AND PRIVATE BUDGETING
Public budgets are different from those of individuals or private companies. Individuals cannot spend more resources than they are able to secure through their own labors, by borrowing, or perhaps through bequests. A recent letter writer to advice columnist “Dear Abby” explains typical individual budgeting behaviors well:
Dear Abby:
After years of enduring overdraft charges and dodging bill collectors, I have finally gotten my financial house in order. I pay all of my bills, and I pay them on time. However, I have very little money left over at the end of the week. Many of my friends have two-income households or use credit cards when they go out to eat or to the movies, which is often. I want them to know that because I decline their invitations does not mean I’m antisocial—I just can’t afford it. I have said so at times, but I hate to be a broken record.
—On Track But Still Broke in Maine, Atlanta Journal-Constitution, July 30, 2013, D2
Whereas the public budgeting process results in legislative appropriations that set the legal limits on spending for a future fiscal year or years, the letter above illustrates how private budgets are more malleable and the timing is different. Private budgets are financial plans that are open to change more frequently, and certainly can be changed more quickly, than public budgets. Also, the profit motive of private companies leads to actions and activities that promote the adage “buy low, sell high” in terms of their market transactions, often necessitating nimble actions. Governments are usually unable to make budget changes on a dime in the way that private companies can. On the other hand, although there may seem to be limitless income amounts possible for individuals and private corporations to realize, there are short-run constraints—the bottom line for individuals is paying the bills when due; that line for private corporations is maximizing profits while minimizing costs.
Governments, however, operate differently, because they are public and not private entities. Governments provide goods and services that do not necessarily generate profits. This discussion acknowledges that many of the services provided by governments today are available through fee for service. Also, governments contract with private companies to conduct public business. Still, the public or communal aspect that undergirds government work necessitates attention to different objectives from private ones. Part of this relates to understanding the nature of public goods. For example, it is difficult to put a price on national defense, an example of a public good. Also, the provision of national defense cannot be contained to specific individuals or communities. In the United States, whether you pay federal taxes or not, you receive the same national defense services as your neighbor. In the most ideal form, a public good or service has two qualities—non-rivalry and non-excludability. Non-rivalry relates a bit to the pricing problem—that is, that the value of the good or service is not affected by how many people receive the good or service. Non-excludability relates to the other point, that no one can be excluded from consuming the good or service. Governments engage in activities to address market failures or to address externalities that can arise from an imperfect market economy. Importantly, governments can incur deficits to provide public goods and services and to pursue policy goals that address such failures and externalities.
In the United States, policy decisions (macro-budgeting decisions) that influence how large a presence government is in the economy (i.e., federal spending as a percent of GDP) are made at the federal level. Theoretically, national fiscal policy can be used to counteract a changing economy. That is, when the economy is on the decline, the government can initiate tax cuts and spend money through transfers and grants for services, programs, and infrastructure to spur growth. A balancing component to this perspective would be to increase taxes and pull back on spending when the economy surges—but historically this has been more problematic to do, at least in the United States. The US federal budget does not have to balance—it can use borrowed funds in addition to tax receipts, fees, and charges to cover expenditures. Spending that outpaces revenues can cause a budget deficit (the gap between expenditures and revenues in one year) and increase government debt (the total amount of borrowed funds, to date). The decisions that determine the size and role of government in the economy are macro-budgetary ones.
The budgeting decisions of subnational governments are similar to those made by the federal government in terms of setting policy direction for their citizens; however, taxing and spending by these entities are not expected to have nationwide economic impact. Also, at least in the United States, state and local government budgets must balance—the chief executive’s budget proposal must balance, the appropriation bill or bills passed by the legislature must balance, the budget must balance at year-end, or some combination of balancing requirements exists. Though the definition of balance varies, subnational governments in the United States cannot conduct deficit financing to support operating budgets.
THE ROLE AND SIZE OF GOVERNMENT
Economists James Buchanan and Richard Musgrave participated in a seminal weeklong discussion at the University of Munich in March, 1998 that has been recorded in Public Finance and Public Choice: Two Contrasting Visions of the State (1999). These scholars present their perspectives about government budget growth in the twentieth century by debating principles of efficiency and justice related to their theories of public choice and public finance, respectively. These theories represent opposing views of government taxing and spending (macro-budgetary decisions). Musgrave presents government as beneficent—viewing its allocation, distribution, and stabilization roles as appropriate. He defines democratic governance as problem solving, with the distributive role of government guided by a democratically determined “social welfare function” (Buchanan and Musgrave 1999, 46). Though he considers government and its agents as positive forces of justice and efficiency, he recognizes that redistributive politics will “guarantee class conflict” (85–86), which is the antithesis of his vision for a more equitable state through government expansion.
Buchanan, on the other hand, distrusts the state, believing it has become a Leviathan (monolithic) given the self-interested behaviors of political agents (elected officials and bureaucrats). He considers that these agents must be curbed through constitutional rules. Whereas Musgrave views government as an elixir to market failures and inequality, Buchanan views justice as reachable through a well-working market economy and limited government.2 Both men contemplate if the public sector has grown too large by the mid- to late-twentieth century. Musgrave recognizes this growth as “the share of gross national product (GNP)3 flowing through public budgets” (Buchanan and Musgrave 1999, 64) and as ranging among governments from 10 to 60 percent. Buchanan considers a 10 to 12 percent share of GDP “devoted to financing public goods as justifiable” (Buchanan and Musgrave 1999, 84).
What does the size of government look like today, using similar measures? The International Monetary Fund (IMF) collects government finance indicators and other measures for countries around the world that allow for some comparability of government size vis-à-vis the economy. According to the IMF in their World Economic Outlook Database (April 2013), average general government revenues as a percent of GDP for countries around the world increased from 28.2 percent in 2002 to 32.4 percent in 2012 (estimated). Average general government expenditures as a percent of GDP increased from 31.1 percent to 34.0 percent and average gross debt to GDP decreased from 74.8 percent to 50.0 percent, for the same decade. As you would suspect, however, averages can mask outliers.
Table 1.2 presents data from the IMF Economic Outlook Database (April 2013). This table indicates how many countries fall into each category of the fiscal measures of interest—general government revenues, expenditures, and gross debt, each as a proportion of GDP. The countries that will be examined throughout the rest of this book are noted where they fall in this table, too. Table 1.2 shows that over half of countries (52.4 percent) have revenues as a percent of GDP less than 30 percent; well over half of countries (70.6 percent) indicate expenditures as a percent of GDP at 40 percent or less. Over half of countries (54 percent) indicate debt as a percent of GDP at 40 percent or more; 28 percent of countries indicate a debt to GDP ratio over 60 percent. In 2012, a dozen countries have or estimate this ratio to be over 100 percent—Japan indicates the highest debt ratio at 237.9 percent and of the countries we will examine, Italy stands at 127.0 percent and the United States at 106.5 percent. This data attests to an underlying principle of public budgeting—people want services, programs, and support, but they do not want to pay the full costs associated with conducting the work or the support. Governments borrow and seek grants or donor funds to fill gaps between revenues and expenditures.
Table 1.2Number of Countries by Measure of Government Size, 2012
Source: International Monetary Fund, World Economic Outlook Database, April 2013.
General Government Revenues as % of GDP
n
=187 (# of countries)
General Government Expenditures as % of GDP
n
=187 (# of countries)
General Government Gross Debtas % of GDP
n
=174 (# of countries)
less than 20%
(28)GuatemalaIndia
(20)Guatemala
(26)
20% to <30%
(70)Tanzania
(59)IndiaTanzania
(18)AustraliaGuatemala
30% to <40%
(45)AustraliaBrazilUnited States
(53)Australia
(36)
40% to <50%
(28)Italy
(39)BrazilUnited States
(24)Tanzania
50% to <60%
(7)
(11)Italy
(21)
60% or more
(9)
(5)
(49)BrazilIndiaItalyUnited States
Note:
Data for 2012 for some countries may be an estimate.
MODELING THE BUDGETARY PROCESS
Research about public budgeting that attempts to develop predictive models falls into different camps. Normative research is prescriptive, recommending solutions to budget problems that are based on values and not necessarily what happens in actual practice. The primary question addressed through such research is, “what should be done?” In the early part of the twentieth century, during the Progressive movement, budget reformers, public administrators, and economists pressed for greater efficiency of government operations and decision making. This normative approach to budgeting focused on rationalizing the business of government. In strong reaction to corruption in governments at all levels in the United States at the time, some reformers sought more limited government as well as a means to good government; that is, government efficiently conducted and economic in results (Rubin 1990, 1993). The public choice and public finance theories discussed above present different “amounts” of government as efficient—public choice theory reaching efficiency through individual choice behaviors that constrain government growth and public finance theory suggesting government spending to realize the greatest possible return for the public.
On the other hand, descriptive studies seek observable proof of trends, sequences, and patterns of events to determine cause. The primary question addressed through this type of research is “What is done?” Around the mid-twentieth century, incrementalism became the predominant budget theory, having mushroomed from disciplines of political science, economics, and decision sciences. Using descriptive studies of budgetary decisions, processes, and relationships as well as statistical analyses of budget expenditures, the theory offered (at the time) a realistic consideration of public budgeting. Incrementalism was different from normative theories of budgeting that focused on the science of government operations. Nonetheless, Berry (1990), Rubin (1990), and others clarify why incrementalism lost favor as a good explanation for public budgeting by the latter part of the twentieth century. The theory’s tenets of the regularity of relationships, simple decision rules, and an insularity of process simply did not hold up. Especially at the US federal level, as the budget and its components grew more complicated, as the process of budgeting became more jumbled, as conflict among stakeholders amplified, and as budget imbalance expanded, new perspectives poured forth. Following incrementalism, punctuated equilibrium and real-time budgeting (RTB) are two theoretical perspectives that take root as viable predictive models of public budgeting.
Each of these theories is described in more detail below. In the following chapters, you will read about how budget processes have developed in different countries around the world and at the local, state, and federal levels in the United States. You should find that governmental budgeting today, wherever practiced, is an evolving process that is difficult to explain with one theoretical framework or through one research lens.
Branch and Root Methods of Decision Making
Incrementalism is a theoretical perspective used to describe government budget growth around the middle of the twentieth century in the United States. Aaron Wildavsky (1964) explained a framework in which budget development is backward looking, based on history and past policy. That is, current budget deliberations are anchored on past agreements, thereby keeping conflict to a minimum. Budget allocation is based on political promises of goods and services to be provided. Rather than representing any grand scheme for government, the budget was the result of successive limited comparisons or consideration at the margins—the most important determinant of next year’s budget was this year’s budget.
This perspective of budgeting regarded a process in the United States at the time that was routine. There were annual, repetitive roles among the president, executive (central) budget examiners, agency heads, and budget and program officers in terms of developing spending requests, and the congressional committee and subcommittee members in terms of determining appropriations. Receipts from the national income tax that grew significantly after World War II provided a ready resource to federal agencies in accommodating the burgeoning expectations of the public for new or expanded services. Ever-growing revenues, a routine budget cycle, and consistent roles among budget actors allowed Wildavsky (1964) to tease out the calculations made and strategies used by these actors throughout the process. Cabinet secretaries and agency heads pushed for expansive budgets to carry out programs and services demanded by clients and constituents; central budget examiners culled requests to fit with the president’s budget and policy agendas and later in the process provided central clearance for agency spending. Congressional committee and subcommittee members (Appropriations) acted as naysayers in the House—cutting back agency budget requests in their traditional service as guardians of the public purse. Senators, however, traditionally offered some recourse to agencies to recoup cuts made by House members. According to Wildavsky (1984), “[a] member of the Senate Appropriations Committee is likely to conceive of his proper role as the responsible legislator who sees to it that the irrepressible lower House does not do too much damage either to constituency or to national interests” (51). Incrementalism was a good explanation of budgeting in its day. It accommodated consistent, slow growth of the federal budget and the distinctive roles but routine negotiations of budget actors who recognized and engaged in a sense of the budget base and fair share in terms of the budget pie.
Incrementalism is often juxtaposed with more rational methods of budgeting. In his research about policy development, Charles Lindblom (1959) compares what he terms the branch (successive limited comparisons) and root (rational comprehensive) methods of decision making. The most distinctive aspect of the branch method is that agreement among decision makers determines which policy or policies to pursue. The most distinctive feature of the root method is its comprehensiveness—the determination through means-end analysis of every possible policy to tease out the most valuable one to be pursued. The root method requires that “every important relevant factor is taken into account” (Lindblom 1959, 81), whereas the branch method requires that “important possible outcomes, alternative potential policies and affected values are neglected” (81).
The root method or rational comprehensive theory is normative and certainly in its ideal form, unrealistic for humans to conduct (see Simon 1957). On the other hand, incrementalism (successive limited comparisons) is heavily descriptive, recognizing roles among budget actors in a routine process, requiring the restriction of possible alternatives to reduce conflict, and in fact, determining that complete information and comprehensive analyses are impracticable and even undesirable.
Punctuated Equilibrium
Eventually, incrementalism became “too many things to too many people to be useful” (Berry 1990, 182) as a concept or theoretical framework for understanding public budgeting. Frank Baumgartner and Bryan Jones (1991, 1044–1045), like Kingdon, develop a theory of policy development founded upon agenda setting that accounts for periods of both “extreme stability” as well as “bursts” of dramatic change to policy. James True (1995) considers policy intervention and its effects on budgeting in the United States, examining federal budget authority from 1969 to 1993 to tease out significant budget changes. True determines that some dramatic changes to the US national budget can be explained by policy intervention. Then, Jones, Baumgartner, and True (1998) investigated periods of budget stability or stasis versus change, comparing annual percentage changes in US federal budget authority for domestic spending across time to identify significant budget epochs. They identify three epochs:
From the end of World War II to 1956, characterized as high variability among budget categories, but no consistent trend of budget growth or decline
From 1956 to 1974, characterized as substantial budget growth
Since 1976, characterized as “slower budget growth”
These scholars are able to rule out partisan control of government, changes in the economy, and the public mood as determining budget changes. They explain that finding significant budget change across time knocks traditional incrementalism out as a good predictive model of public budgeting. Both incrementalism and punctuated equilibrium recognize the limits of human decision making. But punctuated equilibrium allows for “shifts in selective attention” that can bring about dramatic changes to policy and budgets (Jones, Baumgartner, and True 1998, 23). These authors point to punctuated equilibrium as a better model of budgetary change, though they conclude that much more data must be collected and analyzed to accurately predict the results of extremely complicated interactions among numerous variables inherent to budgeting. Nonetheless, their framework, in line with Kingdon’s ideas about budgets as evolutionary and the possibilities for cataclysmic change, offered up a new way of thinking about public budgets and the budgeting process.
