Budget Institutions and Fiscal Responsibility: Parliaments and the Political Economy of the Budget Process

Abstract

Can parliaments make an effective contribution to the budget process while preserving fiscal discipline? Reforming budget institutions represents a critical task for emerging economies seeking to strengthen transparency and curb corruption in the management of public finances. Political institutions and institutional arrangements have a decisive influence on economic performance and fiscal responsibility. Parliaments' role in the governance of the budget is nevertheless subdued and often dysfunctional, partly as a result of executive predominance, but also because of legislatures' own deficiencies. Parliaments do possess a wide range of budgetary powers, but often fail to exercise them effectively or responsibly. Legislative oversight of the budget remains inhibited by technical and institutional constraints, both internal and external to legislative organisation. Largely neglected in the first stage of economic reform, legislative budget institutions are now being re-discovered as part of a second wave of reform in governmental financial administration. This essay explores the contribution of parliaments to the budget process in presidential systems of government with highly centralised budgetary systems. It offers a political economy perspective on the budget process in Latin America and reveals increased legislative budget activism since the restoration of democracy. It assesses the constraints to and conditions for enhancing the role of parliaments in public budgeting in a framework of fiscal responsibility. It underscores the risks of excessive executive discretion, when executive prerogatives are not adequately balanced by mechanisms of internal restraint and external scrutiny. It argues that a more purposeful contribution of parliaments to the oversight of the budget might help countries seeking greater accountability in the management of public finances. Ultimately, the governance of the budget reflects a delicate balance between executive power and legislative oversight. The key challenge of legislative budgeting in Latin American is how to retain the advantages of strong executive authority required to ensure fiscal discipline while providing the institutional checks and balances that guarantee effective accountability.