INTRODUCTION
Budgeting has come of age in the twenty-first century. As globalization progresses, more information is available about budget processes and practices of nations around the world. Budgeting continues to be recognized as one of the most critical policymaking processes, reflecting national priorities and previous policy choices. Nearly a generation after the fall of the Berlin wall and the collapse of the Soviet Union, we have seen the creation of new economic and political institutions across a range of transitional democracies. The European Union has grown to twenty-seven nations and contemplates further expansion. Its budget processes and decisions become more important to member nations every year. Rapid globalization has not only affected commerce, it has also increased the degree that innovations in budgetary practices are recognized across international borders. Nations continue to attempt to learn from the successes and failures of others. International reform efforts have been launched to give poor countries better systems and outcomes. But budget reform targets rich countries as well: budget deficits, government guaranteed pensions, and health care costs challenge budget makers around the globe. This book attempts the massive task of comparing budget systems around the globe. The first chapter attempts to develop a comparative framework that can provide global perspectives on government taxing and spending.
A budget tells much about a nation: its health, wealth, problems, and priorities. It reveals the size of the public sector compared with the private sector and the degree of government control of the economy. It indicates the share of national wealth devoted to military spending versus social programs. It reveals a set of policy choices made over a long period of time. A budget is an accounting of revenues and expenditures and can variously be a planning document, a proposal, a guide to operations, or a record of what was collected and spent. National budgets serve several purposes simultaneously and in various nations; budgeting has evolved to encompass new and different objectives. In a democratic political system, the budget process usually involves the preparation of proposals by an executive, review by a parliament, and execution by a bureaucracy.
Budgeting is an important component of governance. What does it say about a political system if it is incapable of rectifying fiscal imbalances, for example? Budgeting is also a critical component of policymaking. Comparative budgeting is premised on the fact that the allocation of public resources affects policy results. Progress in solving public policy problems is linked to how resources are allocated within and between sectors. While some policy failures are linked to disputes about the desirability of certain goals or the means to achieve them, other failures can be traced to weak management controls, underfunding, improperly designed projects, or institutional disincentives for proper performance.
Developing a comparative framework to analyze budgeting around the world is challenging for many reasons. What are the relevant variables? What are the consequences of whether a country is rich or poor, developed or developing, democratic or democratizing, transparent or secretive, centralized or fragmented? What is the appropriate level of detail or generality? The challenge for an effective comparative analysis is to develop meaningful categories that recognize both important differences and commonalities, recognizing interesting details without being swallowed up in budget trivia. What is the role of normative judgments? Much of the comparative budgeting literature is normatively based, focusing on the application of practices in advanced countries. But how transferable are knowledge and budget practices from one political system and political culture to the next? These are some of the questions that we will try to answer.
In this first chapter, we present a framework for comparing budgeting across a range of political systems, from the United States and Europe, to democratizing and developing nations around the world. First, we explore the dimensions of the political and economic environment that create a context for national budgeting. Second, different levels of budgeting—microbudgeting versus macrobudgeting—are considered. Third, we consider how constitutional structure and political institutions affect budgeting. Fourth, we consider budget institutions and processes and identify the stages of budgeting that are commonly found. Fifth, we take up the question of reform and the transferability of practices from one country to another and the international institutions that are pursuing reform agendas. Finally, we look at the policy context and policy challenges facing budget makers as well the constraints that often limit maneuverability.
THE CONTEXT OF BUDGETING
Wealth and Economic Strength
Work on comparative budgeting going back to the 1970s (Caiden and Wildavsky 1974; Wildavsky 1975) focused on the relative wealth or poverty of a country as a predictor of their budget processes. While Aaron Wildavsky had popularized the theory of budgetary incrementalism in the United States (Wildavsky 1964), he recognized that budgeting was not stable from year to year in poorer countries. He hypothesized that the wealthier countries would have more predictable budget outcomes, while poorer ones would be unstable and characterized by repetitive budgeting—the need to frequently revisit or revise previously made budget decisions. He wrote:
Wealth and predictability control all other variables. Poverty homogenizes behavior. When nations are extremely poor and woefully uncertain, the consequences are so pervasive and profound as to determine almost all budgetary behavior. The rulers, so long as they are in power, may decide who gets what the government has to give, but the formal budget is unlikely to be a very good guide to what will happen…. Rich and certain environments lead to incremental budgeting; poverty and predictability generate revenue budgeting; unpredictability combined with poverty generates repetitive budgeting; and riches plus uncertainty produce alternating incremental and repetitive budgeting. (1975, 11–12)
In the twenty-first century, the link between economic conditions and budgeting still are very important. The poorest nations of the world often have poorly functioning political institutions and public financial management systems. Clearly, the level of economic development and national wealth has a tremendous impact on public budgeting. In nations such as Malawi, with a per capita Gross Domestic Product (GDP) of $140 per year, governments are limited in what they can tax and spend compared to Luxembourg, with per capita GDP of $53,000. The structure of the economy (agrarian, industrial, postindustrial), the rate of economic growth, and the possession of natural resources are all significant as well. Table 1.1 examines per capita GDP for the wealthiest and poorest nations. Clearly, governments cannot tax and spend what citizens do not have.
Size of the Public Sector
One important comparison among nations concerns the size of the budget relative to GDP and the degree to which GDP is composed of private versus government spending. Before the end of the cold war, the economies of the Soviet Union and Eastern bloc nations were government-run, using centralized planning rather than a market system. In many of these nations a large underground or “gray” economy existed. With the democratization in the 1990s, many such nations began to privatize their economies, some gradually, some rapidly using “shock therapy.” Today, with the exceptions of a few holdouts such as North Korea, most national economies have significant elements of market capitalism. Even China, which retains a one-party communist political system, has allowed extensive growth of a market economy and has become a major player in the global economic system. One indication of the size of a nation's public sector is the amount of GDP that is collected by the government. Figure 1.1 compares tax revenue as a percentage of GDP for OECD countries (Organization for Economic and Development—a group of wealthier, more developed countries). On the low end are Mexico, Japan, Korea, and the United States, taxing 25 percent or less of GDP. On the high end are Scandinavian countries such as Sweden, Denmark, and Finland that provide extensive “cradle to grave” social welfare systems and tax nearly one-half of GDP.
TABLE 1.1. Per Capita Gross Domestic Product for Richest and Poorest Countries
Rank | Country | GDP Per Capita | Rank | Country | GDP Per Capita |
Highest GDP Per Capita | |
1 | Luxembourg | $52,990.0 | 36 | Puerto Rico | $17,420.0 |
2 | Norway | $49,080.0 | 37 | Israel | $17,220.0 |
3 | Switzerland | $44,460.0 | 38 | Kuwait | $16,700.0 |
4 | Denmark | $39,330.0 | 39 | Bahamas | $16,590.0 |
5 | Ireland | $38,430.0 | 40 | Greece | $15,650.0 |
6 | United States | $37,240.0 | 41 | Martinique | $15,560.0 |
7 | Iceland | $36,960.0 | 42 | Cyprus | $14,790.0 |
8 | Bermuda | $35,940.0 | 43 | Portugal | $14,640.0 |
9 | Sweden | $33,890.0 | 44 | French Polynesia | $14,190.0 |
10 | Japan | $33,680.0 | 45 | Slovenia | $14,130.0 |
11 | Netherlands | $31,770.0 | 46 | South Korea | $12,690.0 |
12 | Austria | $31,410.0 | 47 | Taiwan | $12,670.0 |
13 | Finland | $31,070.0 | 48 | Malta | $12,160.0 |
14 | Cayman Islands | $30,950.0 | 49 | New Caledonia | $11,920.0 |
15 | United Kingdo... |