Budget Balance

6 Key excerpts on "Budget Balance"

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  eBook - ePub

  Constitutional Law and the EU Balanced Budget Principle

  • Eric Oliva, Eric Oliva, Elena-Simina Tănăsescu(Authors)
  • 2021(Publication Date)
  • Routledge

    (Publisher)

  Handbuch Rechtsphilosophie (J.B. Metzler 2017).

  6     Thomas Stauffer, Instrumente des Haushaltsausgleichs, Ökonomische Analyse und Rechtliche Umsetzung (Helbing & Lichtenhahn 2001) 6ff.

  7     John Maynard Keynes, General Theory of Employment, Interest, and Money (Macmillan and Co 1936) 383.

  8     Lorenzo Bini Smaghi, Member of the Executive Board of the ECB, in a speech at the Master Programme in International Business and Economics, Università di Pavia, 24 February 2010, www.ecb.europa.eu/press/key/date/2010/html/sp100224.en.html , accessed 10 December 2020

  Budget Balances in accounting and statistics

  In the end, all Budget Balances are based on what has been accounted for in books and ledgers. The way this is done is therefore of crucial importance for the understanding of the concept of Budget Balance, both in a normative and positive perspective. In this chapter we thus present a short outline of public sector accounting, its systems and standards, as well as government finance statistics with a view to the concept of Budget Balance.

  Public sector accounting

  Public sector accounting may be defined as the recording, classifying and aggregating of financial and economic data in such a way as to provide information about the government and other public entities controlled by it for accountability and decision-making purposes. This is a tentative, primarily descriptive definition, because unlike private sector accounting the theoretical basis of public sector accounting is still underdeveloped.9

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  Towards the Managed Economy

  Keynes, the Treasury and the fiscal policy debate of the 1930s

  • Roger Middleton(Author)
  • 2013(Publication Date)
  • Taylor & Francis

    (Publisher)

  To remedy this central defect, the concept of the full (or constant) employment Budget Balance was developed. 2 This is defined as the Budget Balance that would result (with the same nominal tax rates and public spending plans) if private sector demand was just sufficient continuously to maintain activity at a constant rate of unemployment. It is thus a measure of the Budget Balance which would have occurred had there been no deviation of economic activity from its trend path. Since such a measure will not be ‘affected by fluctuations in economic activity that shrink or swell the revenue base relative to that associated with the path of potential growth’, it consequently provides a means ‘to focus on the policy actions that determine expenditure programs and tax rates, and to separate them from a consideration of the autonomous strength of private demand and of the posture of monetary policy’ (Okun and Teeters 1970, 78). While this is the most appropriate measure for our purposes, before proceeding further with our analysis we ought to briefly consider alternative measures (see Lotz 1971; Chand 1977 and Shaw 1979 for a fuller discussion). The selection of any summary measure of fiscal influence requires that abstractions be made concerning the structure of the economy and the channels through which the budget interacts with the economy

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  eBook - ePub

  The Debt Delusion

  Living Within Our Means and Other Fallacies

  • John F. Weeks(Author)
  • 2020(Publication Date)
  • Polity

    (Publisher)

  The “balance the books” cliché subsumes several issues about budgets rarely made explicit. To take two obvious ones: what should be balanced, and over what time period? Conventional answers to these questions are that total revenue should equal total spending and that balancing should be an annual goal. Both answers are arbitrary, with little or no analytical or practical justification. The next section pursues the question of what should be balanced. With regard to time span, most national governments have procedures organized around annual budgets, with these procedures set by long practice with no obvious technical basis.

  The characteristics of spending and tax categories do not lend themselves to matching over a specific time period such as twelve months. While this does not in itself negate the putative imperative to balance the budget, it should leave one skeptical about assigning great importance to annual outcomes. Discussions of budget balancing (total revenue = total expenditure) over any time period typically treat expenditure and tax as undifferentiated amounts rather than as a combination of elements with various characteristics and different functions. To make further progress, we take apart (“disaggregate”) both taxing and spending.

  Budget Uncertainty

  Concern about whether governments should balance their books too often proceeds as if both tax and spending were totals that governments can accurately plan and achieve. The presumption that governments control spending and tax outcomes leads to the expectation that the balance between the two, the surplus or deficit, is also well within the power of governments to control. With this presumption of predictability and control, the media frequently take politicians to task for “not meeting their targets,” especially targets for deficit reduction.

  In practice, total spending, total tax revenue and the balance between them are uncertain outcomes over which the taxing and spending government has less than full control. The root cause of the lack of control is the interactive nature of what the government does and the response of the economy, and vice versa. As developed in greater detail below, government tax and spending policies affect the ebb and flow of private economic activity; and the ebb and flow of private economic activity feed back on public spending and tax revenue.

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  The Reform of Macroeconomic Policy

  From Stagflation to Low or Zero Inflation

  • J. Perkins(Author)
  • 2016(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  One eminent British financial jour- nalist has said (Brittan, 1993): ‘There is an almost unlimited number of respectable ways of defining the budget deficit.’ This means, of course, that ‘the’ budget deficit can rise on one definition in a period in which it may fall on another (perhaps equally or more defensible) definition. One can, for example, define it: to include, or to exclude payments for capital outlays (on some definition – before or after allowing for depreciation on government owned assets); to include, or to exclude, investment by government business undertakings; to consider only the central government or the general government sector (which includes local government); or to include, or to exclude, unfunded liabilities for pensions and for similar official transfer payments. Or one can concen- trate on the ‘primary’ surplus or deficit – that is, netting out from outlays interest on the national debt (on the ground that there needs to be a net surplus on other items if the level of national debt is to be reduced; and as a very approximate way of discounting for the effect on spending of changes in real interest rates and inflation) (Blanchard, 1990). There is also the matter of adjustment of the Budget Balance (and so the national debt), for the effects of inflation. When the price level rises, the real level of government liabilities, and so the wealth of the owners of the government securities, is reduced as surely as if a tax had been levied upon them. Obviously, this consideration is less important now that inflation is at much lower levels; but, on the other hand, the total nominal level of the national debt is almost everywhere now higher, and thus also the base on which this adjustment has to be calcu- lated. This adjustment ought to be calculated each year and subtracted 144 The Reform of Macroeconomic Policy

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  Government Budgeting and Expenditure Controls : Theory and Practice

  • A. Premchand(Author)
  • 1989(Publication Date)
  • INTERNATIONAL MONETARY FUND

    (Publisher)

  Table 3 , with the exception of Burma and Zambia, has been one of steadily increasing budget deficits. Steep acceleration in the growth of budget deficits is particularly noteworthy in Jamaica (from I percent in 1960 to 8 percent in 1975), Pakistan (from 11 percent to 23 percent), the Philippines (15 percent to 19 percent), and Tanzania (whose deficit increased in the five years 1970–75 from 4 percent to 10 percent of GDP). Zambia, which had budget surpluses in 1965 and 1970, incurred a budget deficit by 1975 that was equivalent to a fifth of its GDP.

  Table 3 . Selected Countries: Public Finance, Selected Years, 1950–751

  Source: International Monetary Fund, International Financial Statistics Yearbook (Washington, 1980).

  1 Data are in countries’ respective currencies: revenues include grants received. Data are not consistent for the period and have not been adjusuted for changes in the scope and coverage of the government budget. Data relate to central governments only.

  Legend: R = Revenues E = Expenditures D = Deficit. Surplus is indicated by a plus sign.

  The financing of budget deficits could, in theory, be done in one of three ways: (a) by issuing more money, (b) by borrowing from the public or from abroad, and (c) through the balanced budget multiplier mechanism by maintaining the budget deficit constant and by financing the increase in expenditures through increased taxation. The last technique did not have much practical impact, however, as the additional revenues were less than the increases in expenditures. Reflecting their structural differences, industrial countries showed greater reliance on borrowing from the public, while the developing world took the path of credit expansion. The high budget deficits financed by borrowing from the domestic banking system contributed to excess demand and rising prices at home which spilled over to imports. As costs and prices rose relative to foreign prices, export and import sectors contracted and the balance of payments deteriorated.

  The role of fiscal policy in the above situations is to aim at stabilization of the economy through measures to counteract the negative influences and restore better economic conditions. Stabilization policies emphasize the need for corrections in the government budget by limitations on credit to government, acquisition of new debt, and mobilization of additional budgetary resources from increased revenues or reduced expenditures. The choice of policy instruments is primarily influenced by the identification of the precise causes of deterioration and the likely effects of different policy instruments. Such stabilization-oriented fiscal policies were broadly followed during the 1950s, 1960s, and 1970s. During this three-decade period, conscious efforts were made to manage aggregate demand and the economy by short-term adjustments in fiscal policies in conjunction with other policies. If, however, the effects of these policies are seen in terms of the size of the budget deficits during 1975 and thereafter, it might appear that the stabilization policies did not have the desired effect. Recent analysis of international experience with stabilization suggests that it is more of an art than a science and that both policy and institutional factors can and do stand in the way of appropriate managment of the economy.10

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  Macroeconomic Theory

  A Dynamic General Equilibrium Approach - Second Edition

  • Michael Wickens(Author)
  • 2012(Publication Date)
  • Princeton University Press

    (Publisher)

  figure 5.1 , which plots government expenditures as a proportion of GDP for the United States and for the United Kingdom since 1901. Real government expenditures on goods and services and real social security benefits as a proportion of GDP have increased considerably over the last century. In 1901 they were only 2.3% of GDP for the United States and 13.5% for the United Kingdom. In most Western countries they increased from around 10–20% of GDP prior to World War I to around 40–50% after World War II. The wars themselves were the times of the greatest expansion in government expenditures. Since World War II, the shares of government expenditures in GDP have risen steadily and, apart from unemployment benefits, which vary countercyclically over the business cycle, they are not much affected by the business cycle. On average, the expenditures on goods and services and on transfers are roughly equal in size. Total government expenditures also include interest payments on government debt.

  Government revenues are primarily tax revenues: direct taxes on incomes and expenditure, social security taxes, and corporate taxes. The balance varies somewhat between countries, but for most developed countries direct taxes and social security taxes—which are in effect taxes on incomes—are about 60% of total tax revenue, consumption taxes are about 25%, and corporate taxes are about 10%. The average tax rate on incomes (including social security) is around 42%. Tax revenues tend to be more affected by the business cycle than expenditures. This is the main reason why government deficits tend to increase during a recession.

  As previously noted, governments can raise additional revenues through borrowing from the public or borrowing from the central bank, i.e., by printing money. The government simply extends its overdraft on its account with the central bank, which cashes checks issued to the public by the government.

  It is common in macroeconomics without microfoundations, such as Keynesian macroeconomics, to treat government expenditures as having no welfare benefits. They are included simply to allow fiscal policy to be included in the analysis and to allow the size of the fiscal multiplier to be calculated. In the standard Keynesian model this is the effect on GDP of a discretionary change in government expenditures. As this is tantamount to buying goods and services and then throwing them away—or, as Keynes himself noted, burying them— this is not a satisfactory formulation of fiscal policy. In our analysis we start by including government expenditures in the household’s utility function. We then discuss the issue of the optimal level of government expenditures. This is followed by an analysis of public finances: how best to pay for government expenditures and satisfy the government budget constraint. We also examine optimal tax policy, optimal debt, and the sustainability of fiscal deficits (the fiscal stance) in the longer term. At the end of the chapter we summarize our findings on the best way to manage fiscal policy.

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