
INTRODUCTION

THE SIZE OF GOVERNMENT AND BUDGET
APPLICATION: EMPIRICAL ANALYSIS
ECN 3053 Government Budgeting
Assoc. Prof. Yeşim Kuştepeli
1
INTRODUCTION, DESCRIPTION AND OTHER ISSUES
A.
Description and issues

Public budgeting involves the selection of ends and the
selection of means to reach those ends. It involves the division
of the society’s economic and financial resources between the
public sector and the private sector and the allocation of such
resources among competing public sector needs.

Public budgeting systems work by chanelling various types of
information about societal conditions and about the private and
public values that guide resource allocation decision making.

Budgeting is intended as a mechanism for setting goals and
objectives, for measuring progress towards objectives, for
identifying weaknesses or inadequencies in organizations and
for controlling and integrating the diverse activities carried out
by numerous subunits within large bureaucracies, both public
and private.
ECN 3053 Government Budgeting
Assoc. Prof. Yeşim Kuştepeli
2

Budgeting is also about assigning responsibility for accomplishing
the results intended by the executive and legislative branch
actors that ultimately set the public budget.

The essence of budgeting is that it allocates scarce resources
and implies choice between potential objects of expenditure.

Budgeting does not compare only two reasonably similar items.
There may be a nearly limited number of choices. There is also a
tendency to make comparisons within categories where the
comparison is meaningful.

Sometimes, budgeting requires comparison of different and
seemingly incomparable things. Comparing dissimlar items may
require a list of priorities.

Public budgets describe what governments do by listing how
governments spend money. Budgets limit expenditures to the
revenues available, to ensure balance and prevent overspending.
ECN 3053 Government Budgeting
Assoc. Prof. Yeşim Kuştepeli
3

Public budgets are not only technical managerial documents; they
are also very political.

Budgets reflect choices about what government will and will not do.
They reflect general public consensus about what kinds of services
governments should provide and what citizens are entitled to as
members of the society.

Budgets reflect priorities-between police and food control, day care
and defense etc. The budget process mediates between groups
and individuals who want different things from government and
determines who gets what.

Budgets reflect the relative proportion of decisions made for
efficiency, effectiveness and broader public goals. Budgets reflect
the degree of importance legislators put on satisfying their
constituents and the legislators’ willingness to listen to interestgroup demands.
ECN 3053 Government Budgeting
Assoc. Prof. Yeşim Kuştepeli
4

Budgets provide a powerful tool of accountability to citizens who
want to know how the government is spending their money and if
government has generally followed their preferences.

Budgets reflect citizens’ preferences for different forms of taxation
and different levels of taxation as well as the ability of a specific
group of taxpayers to shift tax burden to others. The budget
reflects the degree to which the government redistributes wealth
through the tax system.

The budget influences the economy, e. g. fiscal policy affects the
level of employment.

Budgets reflect the relative power of different individuals and
organizations to influence budget outcomes.
ECN 3053 Government Budgeting
Assoc. Prof. Yeşim Kuştepeli
5
B.
Differences Between Public and Private Budgeting
1.
Resource availability:
the amount of resources available for allocation varies greatly.
For private budgeting, income is generally fixed but for
government there are higher limits.
government has the power to determine how much of the
society’s total resources will be taken for public purposes but
private parties operate within the limits of their ability to acquire
resources through their market activities (selling labor or goods,
etc.)
2.
Rule limitations: Public budgets are incredibly constrained
compared to the private sector. There are often rules about the
purposes of which revenue can be spent and the time frame in
which it can be spent, as well as the requirements for balance
and limits on borrowing.
ECN 3053 Government Budgeting
Assoc. Prof. Yeşim Kuştepeli
6
3.
Profit motive: The private sector is characterized by the profit
motive whereas government undertakes many things that are
financially unprofitable.
4.
Services provided: public goods, externalities, imperfect
information and asymmetric information, i. e. market failure.
5.
Pricing public services: Defining what is clearly public in
nature and determining what the private sector presumably
cannot or will not provide is controversial. So, many services
once thought to be public can be converted into private
services or to public services provided by private firms on a
contract basis.
6.
Efficiency: Whatever objectives other than profit private
corporations may have, to stay in business they must seek
economic efficiency and obtain the greatest possible return on
investments. Governments may be intentionally inefficient in
resource allocations.
ECN 3053 Government Budgeting
Assoc. Prof. Yeşim Kuştepeli
7
7.
Accountability: Both private organizations and governments are
responsible to their stockholders and clients. In the private sector,
these individuals can disassociate themselves from firms.
8.
Organization: Private decision making is more centralized than
government decision making. Governments face more difficulty in
making decisions both to inaugurate programs and to eliminate
them.
9.
Variety of actors: In public budgeting, there is variety of budgetary
actors who have different priorities and different levels of power
over budgetary outcomes.
10.
Payer-Decider: In governmental budgeting, elected officials spend
citizens’ money, not their own. Generally, individuals and smallbusiness owners spend their own money.
ECN 3053 Government Budgeting
Assoc. Prof. Yeşim Kuştepeli
8
C.
Budget and Budgeting systems

In its simplest from, a budget is a document or a collection of
documents that refers to the financial condition and future
plans of an organization, including information on revenues,
expenditures, activities and goals.

There may be a series of budget documents instead of one
budget for a government:
i) operating budget handles the bulk of ongoing operations,
ii) capital budget covers major new construction projects
iii) special fund budgets cover programs funded by specific
revenue sources.

Budgetary decisions always imply a causal process in which
work activities consume resources to achieve goals.

Budgeting is a system which is a set of units with relationships
among them.
ECN 3053 Government Budgeting
Assoc. Prof. Yeşim Kuştepeli
9

Budgetary decision making consists of the actions of executive
officials, legislative officials, organized interest groups, and
perhaps unorganized interest groups.

Budgeting systems involve political actors, economic and social
theories, numerous institutional structures, and competing norms
and values, all of which produce outputs in patterns not
immediately evident from studying only budget documents.

Modern information technology and the greater emphasis on
responsibility at all levels of the organization for achieving results
means the lower-level staff in an agency are much more
influential.

Budget decisions are rarely final and more commonly are
sequential. Decisions are tentative, in that each decision made is
forwarded for action to another participant in the process.
ECN 3053 Government Budgeting
Assoc. Prof. Yeşim Kuştepeli
10
D.
Budget Decision making
There are five major types of decision making in
governmental budgeting:
1)
Reform Orientation: Politics and budgeting should be antithetical,
budgeting should be exclusively technical and comparison between
items should be technical and efficiency based. Politics in the sense
of the opinions and priorities of elected officials and interest groups is
an unwanted intrusion that reduces efficiency and makes decision
making less rational.
2)
Incrementalist view: Budgeting is about negotiations among a
group of routine actors , bureaucrats, officials, etc. The process is
open, anyone can play and win and the overall outcome is good.
3)
Interest group determinism: Interest groups are dominant actors in
the budget process. Conflict is more extensive than in the
incrementalist model.
ECN 3053 Government Budgeting
Assoc. Prof. Yeşim Kuştepeli
11
4)
Process: The budget process itself is the center and the focus of
budget politics. The budget process becomes the means of achieving
or denying separation and balance between the branches of the
government.
5)
Policy-making: Budget decisions emphasize the tradeoffs,
especially those occur between major areas of the budget such as
social services and defense or police. This view also emphasizes the
role of the budget office in making policy and the format of the budget
in encouraging comparisons between programs.
ECN 3053 Government Budgeting
Assoc. Prof. Yeşim Kuştepeli
12
E.
Clusters in in Public Budgets
Public budgeting must be segmentable and interruptible. This is satisfied
by dividing budgeting into separate but linked decision clusters.
1.
Revenue Cluster : emphasizes the scarcity of resources and
illustrates the tension between accountability and acceptability.
2.
Budget Process: concerns how to make budget decisions.
3.
Expenditure Cluster: involves technical estimates of likely
expenditures, emphasizes the competition for limited resources and
the resulting tradeoffs, choices between specific sets of alternatives.
4.
Balance Cluster: concerns the question whether the budget has to
balances or whether borrowing is allowed, and if so for how long,
how much and for what purposes.
5.
Budget Implementation: deals with the issue to implement decisions
exactly as made and the need to make changes.
ECN 3053 Government Budgeting
Assoc. Prof. Yeşim Kuştepeli
13