## Budget Processes and Commitment to Fiscal Discipline

_IMF Working Papers, July 1, 1996_

## Source details

**Canonical URL:** [Budget Processes and Commitment to Fiscal Discipline](https://www.imf.org/en/publications/wp/issues/2016/12/30/budget-processes-and-commitment-to-fiscal-discipline-1881)

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## Bibliographic details
- Published: July 1, 1996
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451850079.001

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### Political-economy model of the budget process
- Develops a political-economy model focused on the common pool problem of the public budget.
- Identifies an externality: public spending is often targeted at individual groups while the tax burden is widely dispersed, creating a bias toward excessive expenditures and debt.
- Emphasizes the role of actors with particularistic interests (spending ministers, members of parliament) in driving the bias.

### Centralization as a corrective mechanism
- Argues that introducing elements of centralization in the budget process can reduce the deficit bias.
- Defines centralizing elements as institutional structures that strengthen a comprehensive (whole-budget) view over the particularistic views of spending ministers and MPs.
- Identifies the desired effect: reduce the externality from fragmented spending decisions and align incentives toward fiscal discipline.

### Evidence from EC countries and empirical findings
- Uses examples from EC countries to illustrate variation in the presence or absence of centralizing elements in budget processes.
- Presents empirical evidence supporting the claim that centralizing elements reduce the deficit bias.

### Policy implications and models for reform
- Concludes with models for reform of the budget process aimed at strengthening centralizing elements.
- Implied policy directions:
  - Strengthen institutions that provide a comprehensive view of the budget (central finance ministry roles, aggregate controls).
  - Reform budget processes to limit the ability of particularistic actors to generate common-pool spending externalities.
  - Use institutional design to align decentralized spending incentives with aggregate fiscal constraints.

### Subjects and keywords covered
- Budget execution and treasury management
- Budget planning and preparation
- Expenditure
- Fiscal law
- Fiscal policy
- Government debt management
- Public financial management (PFM)
- Keywords: Budget planning and preparation, budget process, budget proposal, EC government, finance ministry, spending minister, WP

*Budget Processes and Commitment to Fiscal Discipline, Working Paper No. 1996/078.*

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/30/budget-processes-and-commitment-to-fiscal-discipline-1881_