INTRODUCTION THE SIZE OF GOVERNMENT AND BUDGET APPLICATION: EMPIRICAL ANALYSIS

ECN 3053 Government Budgeting Assoc. Prof. Yeşim Kuştepeli

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INTRODUCTIONINTRODUCTION

THE SIZE OF GOVERNMENT AND BUDGETTHE SIZE OF GOVERNMENT AND BUDGETAPPLICATION: EMPIRICAL ANALYSIS


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INTRODUCTION, DESCRIPTION AND OTHER ISSUES

A. Description and issues

Public budgeting involves the selection of ends and the selection of means to reach those ends. It involves the division of the society’s economic and financial resources between the public sector and the private sector and the allocation of such resources among competing public sector needs.

Public budgeting systems work by chanelling various types of information about societal conditions and about the private and public values that guide resource allocation decision making.

Budgeting is intended as a mechanism for setting goals and objectives, for measuring progress towards objectives, for identifying weaknesses or inadequencies in organizations and for controlling and integrating the diverse activities carried out by numerous subunits within large bureaucracies, both public and private.


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Budgeting is also about assigning responsibility for accomplishing the results intended by the executive and legislative branch actors that ultimately set the public budget.

The essence of budgeting is that it allocates scarce resources and implies choice between potential objects of expenditure.

Budgeting does not compare only two reasonably similar items. There may be a nearly limited number of choices. There is also a tendency to make comparisons within categories where the comparison is meaningful.

Sometimes, budgeting requires comparison of different and seemingly incomparable things. Comparing dissimlar items may require a list of priorities.

Public budgets describe what governments do by listing how governments spend money. Budgets limit expenditures to the revenues available, to ensure balance and prevent overspending.


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Public budgets are not only technical managerial documents; they are also very political.

Budgets reflect choices about what government will and will not do. They reflect general public consensus about what kinds of services governments should provide and what citizens are entitled to as members of the society.

Budgets reflect priorities-between police and food control, day care and defense etc. The budget process mediates between groups and individuals who want different things from government and determines who gets what.

Budgets reflect the relative proportion of decisions made for efficiency, effectiveness and broader public goals. Budgets reflect the degree of importance legislators put on satisfying their constituents and the legislators’ willingness to listen to interest-group demands.


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Budgets provide a powerful tool of accountability to citizens who want to know how the government is spending their money and if government has generally followed their preferences.

Budgets reflect citizens’ preferences for different forms of taxation and different levels of taxation as well as the ability of a specific group of taxpayers to shift tax burden to others. The budget reflects the degree to which the government redistributes wealth through the tax system.

The budget influences the economy, e. g. fiscal policy affects the level of employment.

Budgets reflect the relative power of different individuals and organizations to influence budget outcomes.


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B. Differences Between Public and Private Budgeting

1. Resource availability: the amount of resources available for allocation varies greatly. For private budgeting, income is generally fixed but for government there are higher limits.

government has the power to determine how much of the society’s total resources will be taken for public purposes but private parties operate within the limits of their ability to acquire resources through their market activities (selling labor or goods, etc.)

2. Rule limitations: Public budgets are incredibly constrained compared to the private sector. There are often rules about the purposes of which revenue can be spent and the time frame in which it can be spent, as well as the requirements for balance and limits on borrowing.


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3. Profit motive: The private sector is characterized by the profit motive whereas government undertakes many things that are financially unprofitable.

4. Services provided: public goods, externalities, imperfect information and asymmetric information, i. e. market failure.

5. Pricing public services: Defining what is clearly public in nature and determining what the private sector presumably cannot or will not provide is controversial. So, many services once thought to be public can be converted into private services or to public services provided by private firms on a contract basis.

6. Efficiency: Whatever objectives other than profit private corporations may have, to stay in business they must seek economic efficiency and obtain the greatest possible return on investments. Governments may be intentionally inefficient in resource allocations.


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7. Accountability: Both private organizations and governments are responsible to their stockholders and clients. In the private sector, these individuals can disassociate themselves from firms.

8. Organization: Private decision making is more centralized than government decision making. Governments face more difficulty in making decisions both to inaugurate programs and to eliminate them.

9. Variety of actors: In public budgeting, there is variety of budgetary actors who have different priorities and different levels of power over budgetary outcomes.

10. Payer-Decider: In governmental budgeting, elected officials spend citizens’ money, not their own. Generally, individuals and small-business owners spend their own money.


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C. Budget and Budgeting systems

In its simplest from, a budget is a document or a collection of documents that refers to the financial condition and future plans of an organization, including information on revenues, expenditures, activities and goals.

There may be a series of budget documents instead of one budget for a government: i) operating budget handles the bulk of ongoing operations, ii) capital budget covers major new construction projectsiii) special fund budgets cover programs funded by specific revenue sources.

Budgetary decisions always imply a causal process in which work activities consume resources to achieve goals.

Budgeting is a system which is a set of units with relationships among them.


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Budgetary decision making consists of the actions of executive officials, legislative officials, organized interest groups, and perhaps unorganized interest groups.

Budgeting systems involve political actors, economic and social theories, numerous institutional structures, and competing norms and values, all of which produce outputs in patterns not immediately evident from studying only budget documents.

Modern information technology and the greater emphasis on responsibility at all levels of the organization for achieving results means the lower-level staff in an agency are much more influential.

Budget decisions are rarely final and more commonly are sequential. Decisions are tentative, in that each decision made is forwarded for action to another participant in the process.


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D. Budget Decision making

There are five major types of decision making ingovernmental budgeting:

1) Reform Orientation: Politics and budgeting should be antithetical, budgeting should be exclusively technical and comparison between items should be technical and efficiency based. Politics in the sense of the opinions and priorities of elected officials and interest groups is an unwanted intrusion that reduces efficiency and makes decision making less rational.

2) Incrementalist view: Budgeting is about negotiations among a group of routine actors , bureaucrats, officials, etc. The process is open, anyone can play and win and the overall outcome is good.

3) Interest group determinism: Interest groups are dominant actors in the budget process. Conflict is more extensive than in the incrementalist model.


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4) Process: The budget process itself is the center and the focus of budget politics. The budget process becomes the means of achieving or denying separation and balance between the branches of the government.

5) Policy-making: Budget decisions emphasize the tradeoffs, especially those occur between major areas of the budget such as social services and defense or police. This view also emphasizes the role of the budget office in making policy and the format of the budget in encouraging comparisons between programs.


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E. Clusters in in Public Budgets

Public budgeting must be segmentable and interruptible. This is satisfied by dividing budgeting into separate but linked decision clusters.

1. Revenue Cluster : emphasizes the scarcity of resources and illustrates the tension between accountability and acceptability.

2. Budget Process: concerns how to make budget decisions.

3. Expenditure Cluster: involves technical estimates of likely expenditures, emphasizes the competition for limited resources and the resulting tradeoffs, choices between specific sets of alternatives.

4. Balance Cluster: concerns the question whether the budget has to balances or whether borrowing is allowed, and if so for how long, how much and for what purposes.

5. Budget Implementation: deals with the issue to implement decisions exactly as made and the need to make changes.

INTRODUCTION THE SIZE OF GOVERNMENT AND BUDGET APPLICATION: EMPIRICAL ANALYSIS

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