Top-down Budgeting Research Articles

The Swedish-Norwegian Experience of Increased Budget Control Due to Hierarchical Budget Reforms in their National Parliaments

Abstract There has been a wide-ranging discourse among scholars as to whether a hierarchical budget process contributes to increased fiscal discipline. During the 1990s such reforms were introduced in Sweden and Norway. These countries are characterized as being quite equal. However, they faced contrary economic challenges, with an accelerating debt in Sweden contrasting with huge resource revenues in Norway. Nonetheless, they shared equal political challenges by being characterized by minority as well as coalition governments, and even a large proportion of minority, coalition governments. This study confirms that there has been significantly increased fiscal discipline during the parliament’s budget approval process. The outcome has been supported by reforms to the preparation of the budget approval, which have been centralized to the parliaments’ standing committees on finance. The study supports the framework for evaluation of budget processes in von Hagen and Harden (1995). However, there are two significant modifications which stands out as supplements to the framework. First, strong limitations on amendments may be less important under a regime of top-down budgeting than anticipated in their framework. Second, the importance of centralizing the budget preparation in one specific committee, normally the standing committee on finance, may be stronger than anticipated by von Hagen and Harden.

Medium-term and top-down budgeting in OECD countries

Medium-term and top-down budgeting in OECD countries

‘Poverty’s scar: A qualitative inquiry of financing shortcomings in specialized burn hospitals

BackgroundVictims of burn have particular characteristics such as high vulnerability, expensive treatment, and cost of burn services. Thus, the financing of burn services is crucially important. The purpose of the present work is to recognize the financing challenges in Iranian specialized burn hospitals (SBHs). MethodsIn the present qualitative descriptive research, purposive sampling was used for selecting key informants with maximum variation at local, provincial, and national levels. Semi-structured interviews were used for data collection. Interviews were continued as long as the saturation point was achieved at the 21 st interview. We employed conventional content analysis using an inductive data-driven coding process and theme development for the analysis of the transcribed documents by MAXQDA Analytics Pro 2018 (VERBI GmbH Release 18.2.0 Berlin). ResultsWe extracted 3 themes and 12 sub-themes, including resource mobilization (the poor burnt victims, unique feature of the single- SBH, high direct and indirect costs, and poor intra-sectoral advocacy), insurance coverage for burn care (incomplete breadth of population coverage, inadequate depth of benefits package and coverage of costs, and reimbursements of burn care) and mechanism of financial resource allocation (unsuitable payment system, less sustainable budgeting, inappropriate tariffing for burning services, top-down budgeting approach, and politicized budget process). ConclusionsWe suggest that health policy-makers in Iran could modify the SBHs financing system by improving resource mobilization, scaling up insurance coverage for burns, and optimizing the allocation of financial resources. Besides, we propose several points for policy entry to address SBHs financial difficulties. These points are serious attention to vulnerable and the poor burn patients, provision of burn care in multi-specialized hospitals, strengthening intra-collaboration, revision of tariffs, and payments for burn services, and preservation and realization of burn budgeting.

New development: Lessons and recommendations from South Korea’s experiences with integrated financial management information systems

ABSTRACTThe South Korean government has been reforming its public expenditure management system since 2004. During this time, South Korea adopted new budgeting processes (for example mid-term expenditure framework, top-down budgeting, performance-based budgeting) and developed a new integrated financial information management system. In the course of implementing these reforms, South Korea has important insights and lessons to share with developing countries.

New development: Fiscal reform in South Korea: looking back and moving forward

ABSTRACTAt first glance, it seems that South Korea’s three fiscal systems (mid-term expenditure framework, top-down budgeting, and performance management) function well. However, each fiscal system operates separately and they are inefficient because they follow past practices. This article explains what the problems are and how to overcome them.

Interdependence, participation, and coordination in the budgeting process

This article studies the role of participation in the budgeting process when the company has to coordinate two interdependent divisions. The focus lies on the design of the budgeting process (top-down vs. participative budgets) and the underlying supply of information. This is studied in a principal agent model where two divisions (agents) jointly generate earnings. With the participative budgeting process, the company (principal) implements an information system that provides the division managers with private information. Two economic effects occur. First, the company can benefit from the division managers’ private information by perfectly coordinating the divisions’ operations. Second, the company has to induce the managers to provide productive effort and with participation, to additionally report truthfully. Thus, the company incurs incentive costs. The two considered budgeting processes trade off these effects diametrically. For a low importance of coordination, the company prefers the top-down budgeting process and not installing an information system that allows the managers to obtain private information. Otherwise, the participative budgeting process is used. In contrast to the company, managers always prefer the participative budgeting process. In addition, the model predicts that a higher earnings potential increases the attractiveness of participative budgets.

Recent developments in the work of the Budget Office

This article describes the changes that have taken place in the work of the Budget Office of the central government as a consequence of the transition from the traditional budget process, often referred to as “incremental budgeting”, to top-down budgeting. This transition has taken place in most OECD countries in the course of the last three decades and has generally led to the end of the century-old trend of growth of the public sector relative to GDP. As a consequence of this transition the role of the budget office has shifted from operational expenditure control to supervision on the maintenance of the medium term expenditure framework. In general this has led to a more co-operative relationship between the Budget Office and the financial divisions of the line ministries. This article is based on case studies in three countries, namely the United Kingdom, the Netherlands and Slovenia and highlights the differences in their budgeting procedures and the extent to which the transition to top-down budgeting has been implemented.

탑다운(Top-down)예산제도의 성과 분석: 분야별·소관별·성질별 예산을 중심으로

탑다운(Top-down)예산제도의 성과 분석: 분야별·소관별·성질별 예산을 중심으로

The coverage of aggregate expenditure ceilings

Aggregate expenditure ceilings are today a feature of budgeting in many OECD countries. They are typically used either to enforce a trend-based expenditure policy, or to gradually reduce the size of government. With the increased popularity of expenditure rules, aggregate ceilings are also required to give effect to these rules. This article focuses on the key design issue of the coverage of aggregate expenditure ceilings – that is, should they cover the totality of government expenditure, or is it legitimate to exclude certain categories of expenditure? It is suggested that the distinction between and expenditure is crucial to properly answering this question. It is also argued that the appropriate coverage of aggregate expenditure ceilings is different during expenditure planning (budget preparation) and during budget execution. JEL classification: E620, H610 Keywords: Expenditure ceilings, top-down budgeting, determinate expenditure, indeterminate expenditure, automatic changes, trend-based expenditure policy, contingency reserve, forecasting margin, sequestration, compensation mechanism, welfare cap

An Empirical Analysis on the Promotion of Autonomy for Government Departments after the Introduction of Top-down Budgeting System

An Empirical Analysis on the Promotion of Autonomy for Government Departments after the Introduction of Top-down Budgeting System

A Study on the Effect of the Top-down Budgeting in Defense Sector

A Study on the Effect of the Top-down Budgeting in Defense Sector

A Theory of Participative Budgeting

ABSTRACTThis paper complements the ongoing empirical discussion surrounding participative budgeting by comparing its economic merits relative to a top-down budgeting alternative. In both budgeting regimes, private information is communicated vertically between a principal and a manager. We show that top-down budgeting incurs fewer agency costs than bottom-up budgeting whenever the level of information asymmetry is relatively low. Although the choice between top-down and bottom-up budgeting ultimately determines who receives private information within the firm, we find that both the principal and manager's preferences over the allocation of private information remain qualitatively similar across the two budgeting paradigms. Specifically, while the principal always prefers either minimal or maximal private information, the manager prefers an interim or maximal level of private information regardless of who is privately informed. Last, we use our model to address empirical inconsistencies relating the firm's choice of budgeting process, the resulting budgetary slack, and performance.

Aggregate expenditure ceilings and allocative flexibility

This article shows how to combine top-down budgeting – in the core sense of the establishment of a hard aggregate expenditure ceiling at the start of the budget preparation process – with flexibility in the allocation of the aggregate ceiling between spending ministries during budget preparation. It argues strongly against determining spending ministry shares of the aggregate expenditure ceiling without any prior opportunity for them to present formal new spending proposals. The keys to reconciling top-down budgeting with allocative flexibility are: the baseline/new policy distinction; good forward estimates; a government-wide new policy pool; and spending review. JEL classification: E620, H610 Keywords: Fiscal policy, budget preparation process, top-down budgeting, expenditure ceiling, bottom-up spending requests, fiscal space, multi-year ceilings, baseline ceilings, allocative efficiency, aggregate fiscal discipline, budgeting techniques

The OECD Best Practices for Effective Public Expenditure Control and Their Applicability to the German Länder: The Case of Schleswig-Holstein

While German public finances have remained more resilient than other EU countries throughout the recent crisis, fiscal flexibility has become increasingly limited for its regional governments which deliver most public service. The recent introduction of a balanced-budget requirement (‘debt brake’) for state governments by 2020 will provide additional fiscal stress on underfunded public services like infrastructure, research and education as well as local finances. This article discusses how seven trends in expenditure management (Blondal 2003) - namely medium-term budget frameworks, prudent economic assumptions, top-down budgeting, central input control relaxation, performance budgeting, transparency and modern management practices - can be of help to improve state-level finances in Germany. The state of Schleswig-Holstein is used as a case study to illustrate the challenges faced by German states.

The Reform of Public Expenditure Management Systems in OECD Countries

Blőndal examines the key institutional features in the reform of public expenditure management systems in OECD countries. He notes that the countries which are experiencing the best fiscal outcomes are generally those that have more successfully modernized their budget processes. The paper identifies the most relevant aspects for the control of public expenditure: the use of medium-term frameworks, prudent economic assumptions and top-down budgeting techniques; the relaxation of central input controls; the focus on results; the emphasis on budgetary transparency and the introduction of modern financial management practices concerning, inter alia, accruals, capital charges, carry-overs of unused appropriations and interest-bearing accounts. The paper examines the benefits and the problematic aspects of each of these factors and stresses that they must be taken as a package.

Fiscal Consolidation in Southeastern European Countries: The Role of Budget Institutions

This paper assesses the relative strengths and weaknesses of fiscal institutions in ten Southeastern European countries, using recent benchmarking methodologies developed by FAD. The assessment evaluates each country’s understanding of the scale of the fiscal adjustment challenge, its ability to develop a credible consolidation strategy, and its capacity to implement the strategy. Key institutional arrangements, are generally in place, including top-down budgeting and medium-term budget frameworks. Other institutional arrangements require further attention, including macro-fiscal forecasting, fiscal risk analysis, setting fiscal objectives, presence and role of independent fiscal agencies, and top-down parliamentary approval.

Fiscal Consolidation in Southeastern European Countries: The Role of Budget Institutions

This paper assesses the relative strengths and weaknesses of fiscal institutions in ten Southeastern European countries, using recent benchmarking methodologies developed by FAD. The assessment evaluates each country’s understanding of the scale of the fiscal adjustment challenge, its ability to develop a credible consolidation strategy, and its capacity to implement the strategy. Key institutional arrangements, are generally in place, including top-down budgeting and medium-term budget frameworks. Other institutional arrangements require further attention, including macro-fiscal forecasting, fiscal risk analysis, setting fiscal objectives, presence and role of independent fiscal agencies, and top-down parliamentary approval.

Budgeting in Bulgaria

Bulgaria’s budget management has seen a series of structural and procedural reforms, including in budget execution, treasury functions, internal audit, and programme and medium-term budgeting. This article discusses the use of modern budgeting techniques in Bulgaria such as top-down budgeting, multi-year budgeting perspectives and the use of performance information in the budget process, and makes recommendations for budget formulation, the role of Parliament, budget execution and management (including organisational questions and the role of municipalities), and accounting and audit.

The Relationship between Budgetary Institutions and Efficiencies: Changes after the Implementation of the Top-Down Budgeting System

This paper provides an empirical analysis of the relationship between the top-down budgeting system and allocative efficiencies (budgetary outcomes) in the case of the Korean central government. From the perspective of New Institutionalism, a comparative analysis between the bottom-up budgeting system and the top-down budgeting system was carried out. The results of the analysis confirm the relationships between budgeting institutions, action situations, budgeting participants` interactions, and allocative efficiencies. The changes in budgeting rules, and thus in action situations, due to the implementation of the top-down budgeting system led to changes in budgeting participants` behaviors and thus in budgetary outcomes. Two behavior patterns-excessive budget requests by departments and huge budget cuts by the central budget office-were both greatly reduced. The resulting budgetary outcomes (allocative efficiencies) were changed. These changes were assessed to be reasonably beneficial in the context of the Korean budgeting situation.

Top-Down Budgeting: An Instrument to Strengthen Budget Management

This paper examines the rationale for a top-down approach to budget preparation and approval, and discusses some factors that have to be considered when reorienting the budget process along these lines. The paper argues that the sequence in which budgetary decisions are taken matters, and that a strong top-down approach strengthens fiscal discipline and improves policy prioritization and coordination. Top-down budgeting also alters the division of roles and responsibilities between the central budget authority and line ministries, and requires that the process of determining the total expenditure level, sectoral allocations and individual appropriations is clarified. Finally, the paper argues that strong top-down elements in the parliamentary budget voting process can be effective in addressing the risk of excessive and unsustainable amendments during budget approval.