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The Role of Fiscal Rules in Budgeting

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  • Allen Schick

Abstract

Budgeting is a rule-driven process that regulates the raising and spending of public money. Detailed rules govern the submission of bids for resources by spending units, review of these bids by the Finance Ministry or another central organ, compilation of the annual budget, legislative action including the voting of appropriations, expenditure of funds during the financial year, and reporting on financial stocks and flows. Why have many national governments adopted new budget rules when they have a plethora of old ones? The new rules do not replace – although they may modify – existing rules, thereby adding to the complexity of established budget processes, and often adding as well to the time it takes to complete the main steps in the annual budget cycle. Why add to the complications of an already difficult process? If it is because the old rules do not work, why is it expected that new ones will make much of a difference? Furthermore, the old rules generally empower budget-makers by enabling them to allocate resources according to the preferences of government. Fiscal rules, by contrast, constrain budget-makers, taking away much of their authority to decide aggregate revenue and spending policy. These rules typically prescribe the balance between revenue and spending policy. Every fiscal rule is a limit on the exercise of political will. Why have democracies accepted or imposed fiscal limits on themselves, and why should we expect these limits to be effective when they run counter to the preferences of voters and politicians?...

Suggested Citation

  • Allen Schick, 2003. "The Role of Fiscal Rules in Budgeting," OECD Journal on Budgeting, OECD Publishing, vol. 3(3), pages 7-34.
  • Handle: RePEc:oec:govkaa:5lmqcr2jgl47
    DOI: 10.1787/budget-v3-art14-en
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    Citations

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    Cited by:

    1. Esther Ademmer & Ferdinand Dreher, 2016. "Constraining Political Budget Cycles: Media Strength and Fiscal Institutions in the Enlarged EU," Journal of Common Market Studies, Wiley Blackwell, vol. 54(3), pages 508-524, May.
    2. Carlos Alberto Barreto Nieto & William Orlando Prieto Bustos & Henry Antonio Mendoza, 2012. "Un índice de concentración del presupuesto público," Revista Equidad y Desarrollo, Universidad de la Salle, September.
    3. Ademmer, Esther & Dreher, Ferdinand, 2014. "Institutional constraints to political budget cycles in the enlarged EU," Kiel Working Papers 1964, Kiel Institute for the World Economy (IfW Kiel).
    4. Gösta Ljungman, 2008. "Expenditure Ceilings—A Survey," IMF Working Papers 2008/282, International Monetary Fund.
    5. Nicolescu Cristina & Pirtea Marilen & Botoc Claudiu, 2011. "Public Debt Sustainability Analysis: Eu Case," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(1), pages 409-415, July.
    6. Adekunle, Wasiu & Bekoe, William & Badmus, Sheriff & Anagun, Michael & Alimi, Wasiu, 2021. "Nexus Between Fiscal Discipline And The Budget Process In Africa: Evidence From Nigeria," MPRA Paper 110061, University Library of Munich, Germany.
    7. Ringa Raudla & James W. Douglas, 2021. "Structural Budget Balance as a Fiscal Rule in the European Union—Good, Bad, or Ugly?," Public Budgeting & Finance, Wiley Blackwell, vol. 41(1), pages 121-141, March.
    8. John M. Kim, 2010. "Korea's Four Major Budgetary Reforms: Catching up with a Big Bang," Chapters, in: John Wanna & Lotte Jensen & Jouke de Vries (ed.), The Reality of Budgetary Reform in OECD Nations, chapter 8, Edward Elgar Publishing.
    9. H. Christiaan Schakel & Patrick Jeurissen & Sherry Glied, 2017. "The influence of fiscal rules on healthcare policy in the United States and the Netherlands," International Journal of Health Planning and Management, Wiley Blackwell, vol. 32(4), pages 595-607, October.
    10. Montes, Gabriel Caldas & Acar, Tatiana, 2020. "Fiscal credibility, target revisions and disagreement in expectations about fiscal results," The Quarterly Review of Economics and Finance, Elsevier, vol. 76(C), pages 38-58.
    11. Michael Dothan & Fred Thompson, 2009. "A better budget rule," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 28(3), pages 463-478.
    12. Pratap Ranjan Jena, 2016. "Reform Initiatives in the Budgeting System in India," Public Budgeting & Finance, Wiley Blackwell, vol. 36(1), pages 106-124, February.

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