Prepared by Gian Maria Milesi-Ferretti.
Milesi-Ferretti (1996) contains a more extensive discussion of the theoretical and empirical literature on the link between the budget process and fiscal outcomes.
The term “finance minister” is used throughout to denote the minister(s) in charge of overall budgetary policy.
In addition to the three stages of the budget process mentioned above, there is a fourth one, ex-post control, which is beyond the scope of this paper. For a discussion with reference to the Italian case, see Tanzi (1994b).
This can occur either to increase personal prestige, or to seek a more important role for their ministry. On the existence of an excess spending bias, see Weingast, Shepsle and Johansen (1981).
This document contains two set of fiscal projections: the first is a baseline projection for the central administration in cash terms, under the assumption of no policy change. The second is the program projection which specifies and explicitly incorporates the policy changes to be implemented.
For example, they do not correspond to changes in the government’s net worth and do not take account of the effects of inflation on interest payments. For a thorough discussion of these issues, see Blejer and Cheasty (1991).
See the discussion of the Monti proposal in Section 3. Clearly, these mechanisms are an important component of the credibility of an ex-ante fiscal rule.
A more general issue that is germane to this stage but beyond the scope of this paper is the reform of public administration and of the system of expenditure management. Among the topics that have been debated one can cite the establishment of cost centers within ministries, the enhancement of managerial responsibility and increased emphasis on output rather than inputs in the provision of public services etc. These reforms reflect a more general need to shift from a system of expenditure management and provision of public services based on a strict legal and procedural framework to one which relies heavily on incentives (Tanzi (1994b)). A number of countries have undertaken reform effort in this direction, most notably New Zealand (see Scott (1995)).
As a fallback, the authors argue that if the NDB were not established, numerical targets should be determined within a multi-annual framework formally announced by the government.
It should be recognized that some of the proposals were not formulated to address an overall reform of the budget process. For example, IMF (1995) focuses on public expenditure management, while the Monti proposal is limited to eliminating deviations between ex-ante budget targets and ex-post outcomes.