SYLLABUS
CONTEMPORARY THEORY AND PRACTICE IN BUDGETING
PUAF 688D
Fall 2014
Tuesday: 9:15-11:45 am
Allen Schick
Tel.301-405-7609
aschick@umd.edu
Office Hours: By appointment
This course focuses on the contemporary study and practice of budgeting and public financial
management. It recognizes that budgeting is a process in which practice strongly influences
theory, and theory often induces innovation in practice. It recognize that budgeting is addicted to
reform; it is perennially a work in progress that undergoes frequent adjustment. Many of the topics
identified in this syllabus have experienced reform efforts in recent decades.
Prior coursework in budgeting is not required; it is important, however, that students have an
interest in the subject, and are willing to critically review and build on what others have written.
Toward this end, students will prepare literature reviews that compare different points of view and
developments in budgetary theory , and discuss issues that warrant further study.
Course Requirements
The course does not have exams, but students are expected to be active participants; the course
grade will be influenced by participation scores.
Each student will submit two papers covering a single budget practice or issue. The first paper will
present an annotated bibliography on the selected topic; the second paper will assess relevant
theory and practice.
A list of potential topics is appended to this syllabus. At the second class meeting each student
should rank 3-5 topics in order of preference; the instructor will endeavor to assign topics
according to student preferences, but this may not be possible if many students have the same
interests .Students may propose topics not listed on the syllabus; actual selections will be made in
consultation with the instructor.
Paper 1.
Annotated Bibliography (due October 14)
Each student should submit an annotated bibliography of relevant publications on his/her
assigned topic .Identify articles, books, reports or other material that are important because they
recommend or describe theory or practice. Aim for a bibliography with 10-15 entries. For each
entry, submit annotation that summarizes the main argument of findings, and assesses its
contribution to theory or practice. The annotation may also raise questions for further
consideration. 2-3 paragraphs should suffice for each entry.
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Paper 2.
Critical Review (due November 18 or December 9)
Present a 15-25 page paper (single-spaced) that reviews the linkage of theory and practice,
compares the views of various authors, and (if relevant) the practices of different countries. You
should discuss the extent to relevant theory has (or has not) been validated in practice; you may
also point to additional research that may be appropriate.
Your paper should be thematically integrated; it should not merely be a compilation of book
reports. The paper should discuss aspects on which authors disagree or where practice deviates
from theory.
The instructor will have substantial responsibility in guiding students and reviewing their progress.
Toward this end, the instructor will set aside significant blocks of time to meet with students
during the semester.
Students have the option to submit the paper no later than November 18, and to receive
comments from the instructor and resubmit the paper by the end of the semester. Students who
submit the paper beyond Nov 18 will forego the resubmission option.
Assigned
Prior to certain sessions, students will submit brief (one page, single-spaced) memos that discuss a
particular aspect of the week's topic .Memos should be submitted electronically no later than 6PM
the evening before the scheduled class. Four memos will be assigned; the three highest grades will
be included in the course grade.
Course Grades
Grades will not be curved. Every student who earns an "A" will receive an "A". The course grade
will be weighted on the basis of the following elements.
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Annotated Bibliography
20%
Critical Review
50%
Participation
15%
Assigned Memos
15%
Assigned Readings
Many of the readings will be posted on CANVAS; others will be distributed in class. Students will
be asked to purchase only one book.
Marco Cangiano (ed) Public Financial Management and its Emerging Architecture,
International Monetary Fund
International Monetary Fund, Budgetary Institutions in G-20 Countries (distributed to
students)
Allen Schick, Evolutions in Budgetary Practice (distributed to students)
COURSE SESSIONS
I am likely to adjust the course sessions as the semester progresses; The schedule will give greater
prominence to assigned readings early in the semester and to student presentations later in the
semester.
Sept 2
The Growth of Government and the Evolution of Budgeting
Contemporary budgeting is a byproduct of the modern state. As the footprint and
expenditures of national governments expanded, budgeting was transformed from a means of
controlling and limiting public expenditures into an instrument of economic and program
management. This opening session surveys course objectives and requirements, initiates the
selection of paper topics, and examines trends in the expansion and role of government.
Readings
Trend data on government revenues and expenditures (distributed)
Vito Tanzi & Ludger Schuknecht, Public Spending in the 2oth Century, Chaps 1 & 2
Anwar Shah (ed) Budgeting and Budgetary Institutions, Chap 4
Sept 9
Budgetary Principles and Diagnostics
Leading international organizations have recently formulated and promoted principles and
standards of good budgetary practice .These statements are used to assess budget systems of
developed and developing countries, and to spur reforms. The International Monetary Fund (IMF),
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the Organization for Economic Cooperation and Development (OECD), and the Public
Expenditure and Financial Accountability project (PEFA) issued revised statements during 2014
Readings
IMF, Fiscal Transparency Code
OECD, Principles of Budgetary Governance
PEFA, Diagnostic Guidelines
IMF,
Sept 16
Budgetary Institutions in G-20 Countries
Frameworks for Assessing Budget Systems
This session compares two typologies, developed 40 years apart, for classifying and
interpreting budget processes. Differences between the frameworks indicate the evolution of
budgeting from an administrative process that regulates government expenditures and activities
into a broad policy instrument for steering the economy and establishing public priorities.
Readings
Allen Schick, "The Road to PPB: The Stages of Budget Reform," Public Administration
Review, 1966. in Hyde (ed) Government Budgeting, pp.47-65
Allen Schick, "Reflections on Two Decades Of Public Financial Management Reforms",
in Cangiano, pp.21-76
Sept 23
The Budget As an Instrument of Economic Policy
The growth of government inevitably transformed budgeting into a means of shaping
economic conditions. During the post World War II boom, many countries embraced Keynesian
notion of economic stabilization trough countercyclical fiscal policies. The Keynesian consensus
has been challenged, and uprooted in many countries, by the recent global financial crisis.
Readings
Mark Blyth, Austerity: The History of a Dangerous Idea, Chap 3
Alan Blinder, After the Music Stopped: The Financial Crisis, the Response and the Work
Ahead, pp.409-37
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Allen Schick, "Repairing the Social Contract" OECD Journal On Budgeting
Sept 30
Budgeting Is a Political Process
Budgeting is inherently a political activity that reflects the distribution of power and mobilization
of interests in a country. Focusing on a few countries, this session examines how differences in
governance affect budgetary behavior.
Readings
David Good, The Politics of Public Money Chaps 1 & 4
Mark Hallenberg & others, Who Decides the Budget: A Political Economy Analysis of the
Budget Process In Latin American Countries, Chaps 1 & 10
John Wanna and others, Managing Public Expenditure in Australia, Chap 1
Oct 7
Fiscal Discipline
For generations, constraints on aggregate revenues and expenditures, and on the budget
deficit and public debt were informal. During recent decades they have been formalized through
fiscal rules and fiscal responsibility procedures. Fiscal rules have been introduced in more than 80
countries, including the Stability and Growth Pact adopted by the European Community.
Readings
Cangiano, Chaps 2,3, 5 & 6
IMF Board paper on fiscal rules
Schick, Evolutions, Chaps 11 & 13
Banco D'Italia, Rules and Institutions for Sound Fiscal Policy After the Crisis,
Chaps 9 & 14
Oct 14
Effective Allocation
Efforts to rationalize budget allocations, and to bolster their congruence with government
priorities as well as with evidence on program effectiveness have been among the most persistent
and frustrating themes of contemporary budget reform. Program evaluations, spending reviews,
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and outcome and impact indicators are among the methods devised to facilitate reallocations
from less to more effective uses.
Readings
Schick, Evolutions, Chap 16
Marc Robinson, OECD paper on Spending Reviews
Cangiano, Chap 4
Joseph Wholey & others, Handbook of Practical Program Evaluation, selections
Oct 21
Meetings With Students
To enable each student to meet individually with the instructor, this session (and other
times during the week) will be set aside to discuss paper assignments (both the previously
submitted first paper and the send paper) with each student.
Oct 28
Performance Management
Performance budgeting (PB--allocating money on the basis of actual or expected results--is a
simple idea that has had a disappointing history. Many PB efforts have failed because
government cannot budget for results if it does not manage for results. For this reason, next
week's session on PB is preceded by this week's discussion of managerial dimensions of
performance
Readings
Colin Talbot, Theories of Performance, Chap 1
Allen Schick, Evolutions, Chap 10
Jon Pierre & Guy Peters, Governance, Politics and the State, Chap 3
Jonathan Boston and Others, Public Management: The New New Zealand Model Chap 2
OECD, Government of the Future, Chap 1
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Nov 4
Performance-Based Budgeting
Readings
Schick, Evolutions, Chap 14
Cangiano, Chap 7
Schick, "The Metamorphose of Performance Budgeting, OECD Journal of Budgeting
Marc Robinson, Performance Budgeting, chaps 1 & 15
OECD, Performance Budgeting in OECD Countries, Chaps 3 & 4
Nov 11
Financial Accountability and Transparency
Budgeting is generally a closed-process, in which government announces the results of
internal decisions when it release the budget. Recent reforms have sought to open the process to
outside interests and stakeholders.
Readings
Cangiano, Chap 8
The Open Budget Initiative
Anwar Shah, Participatory Budgeting, Chaps 1 & 3
Nov 18
Time Frames
The annual budget has structured the cyclical routines of budgeting for more than a
century. However, recognition that this short time frame may induce politicians and managers to
disregard future implications of current decisions has led to two innovations--medium-term
expenditure frameworks (MTEF) and long-term sustainability projections.
Readings
Cangiano, Chap 4
Schick, Evolutions, chap 13
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World Bank, Beyond the Annual Budget: Review of Global Experience With
Medium-Term Expenditure Frameworks, excerpts
Nov 25
Fiscal Risks
A budget is a financial plan for an uncertain future; ever fiscal year has the potential to turn
out differently than planned in the budget .Governments face two types of risks: that actual
economic conditions may vary from assumed levels; and that contingent liabilities may compel
unbudgeted expenditures.
Readings
Cangiano, Chap 5
IMF Board paper on fiscal risks
Hana Brixi & Allen Schick, Government at Risk , chaps 1, 3, and conclusion
Dec 2
The Budget Roles of Legislatures and Independent Fiscal Institutions
The budget role of legislatures differs significantly among countries, but there is a definite
trend to greater parliamentary activism, accompanied in some countries by enlargement of
legislative budget staffs and establishment of independent fiscal institutions that shadow the
government's fiscal policies and assumptions.
Readings
Schick, Evolutions, Chap 6
Joachim Wehner, Legislatures and the Budget Process, Chap 3
Cangiano, Chap 6
George Kopits, "Independent Fiscal Institutions: Developing Good Practices"
Lars Calmfors & Simon Wren-Lewis, "What Should Fiscal Councils Do"
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Dec 9
Budgeting in Developing Countries
Most budget innovations were devised in highly developed countries, but have been
transplanted to developing countries, including some that have extremely low per capita incomes.
Economic (and sometimes political) volatility complicates budget tasks in developing countries.
Readings
Cangiano, Chap 14
Anwah Shah, Budgeting and Budgetary Institutions, Chaps 12-15
James Savage, Reconstructing Iraq's Budgetary Institutions, excerpts
PROPOSED PAPER TOPICS
(1)
Accrual Accounting and Budgeting
Application of the accrual basis (in contrast to the cash basis) to financial statements or
budgets Some form of accruals has become standard in financial reporting, but few countries
budget on the accruals basis
(2)
Incremental Budgeting
Normative and descriptive arguments that budgeting is inherently incremental--almost all
expenditure decisions deviate only marginally from the previous year's allocations. Initially
associated with the writings of Aaron Wildavsky, incrementalism has spawned a vast literature .
(3)
Fiscal Decentralization
The concept or norm that the central government should assign significant revenue and
expenditure authority, along with responsibility for major publics services, to subnational
governments. This idea has often been actively promoted by international organizations for
developing countries.
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(4)
Fiscal Rules
Preset limits on key fiscal aggregates, such as total revenues or expenditures, public debt or
the budget deficit. More than 80 countries have adopted fiscal rules, including members of the
European Union.
(5)
Fiscal Risks/Contingent Liabilities
Accounting or budgeting for contingent liabilities, including the risk that actual fiscal
outturns will differ from assumed or budgeted amounts. Countries differ significantly in their
budgetary treatment of contingent liabilities.
(6)
Tax Expenditures
Subsidies or other benefits provided through tax preferences (such as credits and deductions) rater
than through direct expenditures such as grants. Many countries report tax expenditures in the
budget.
(7)
Long-Term Fiscal Projections
Projections of the revenue and expenditure implications of current policies that extend 30
or more years ahead, and may also estimate policy changes required to maintain a sustainable
fiscal position. Long-term projections have not been standardized, and may include fiscal gap
analysis and intergenerational accounting.
(8)
Program Evaluation
Systematic or ad hoc assessment of the cost or effectiveness of proposed or existing
programs, as well as methods for feeding evaluative findings into budget decisions.
(9)
Spending Reviews
Strategic review of public expenditures to determine whether they should be terminated or
modified. These reviews typically are sponsored by political leaders and aim to reduce public
expenditures. They differ in purpose and method from conventional evaluations.
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(10)
Performance Based Budgeting
Allocation of budget resources on the basis of actual or expected results, and the systematic
inclusion of performance information in the budget. Governments differ significantly in the extent
to which they use performance information in deciding the budget.
(11)
Medium-Term Expenditure Frameworks (MTEF)
Extension of the time frame of budgeting from a single fiscal year to the medium-term,
typically the next 3-5 years. The MTEF is not just a projection; its key purpose is to constrain
budget decisions on the basis of estimated future impacts.
(12)
Evidence-Based Budgeting
Use of randomized controlled trials (RCTs) to sientically assess the impacts of policy
interventions. T his method differs from program evaluation in that it is based on comparisons of
groups using different policy instruments.
(13)
Participatory Budgeting
Procedures that give citizens a formal (but limited) role in allocating budget resources.
These efforts typically occur at the local level, mostly in Latin American countries
(14)
Countercyclical Fiscal Policy
The notion that government should use revenue and spending policies to stimulate the
economy when it is weak and restrain the economy when it is at or near full employment. This
concept has been questioned in the aftermath of the global financial crisis.
(15)
Independent Fiscal Councils
In recent years, more than a dozen countries established independent fiscal councils (IFIs)
to monitor (or substitute for) the government's fiscal policies and assumptions. In some countries,
these institutions are responsible to parliament, in others they are free-standing entities.
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(16)
Parliament's role in Budgeting
The budget role of the national legislature depends on the structure of government.
Parliaments have recently become more active and independent on budget matters.
(17)
Integrated Financial Management Information Systems
Modern IT makes it feasible to integrate separate financial management processes, for
example, payroll, procurement, accounting and cash management. Integrated systems are popular,
but not always successful.
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