Budgetary institutions and expenditure outcomes : binding governments to fiscal performance

Abstract

The authors examine how institutional arrangements affect incentives that govern the size, allocation, and use of budgetary resources. They use a diagnostic questionnaire to elicit the relative strengths and weaknesses of specific systems in terms of instilling fiscal discipline, strategically assigning spending priorities, and making the best use of limited resources. In applying their methodology to a sample of seven countries (Australia, Ghana, Indonesia, Malawi, New Zealand, Thailand and Uganda) they also examine how donor assistance affects expenditure outcomes. In New Zealand, reform focused on achieving general fiscal discipline and technical efficiency. In Australia, reform focused on strategic priorities and a shift from central to line agencies. The two countries took different paths, but both sought to alter incentives that affect the size, allocation, and use of resources and to improve transparency and accountability. Systems in Indonesia and Thailand were reasonably effective in instilling fiscal discipline, butIndonesia seemed better at allocating resources to protect basic social services and alleviate poverty during fiscal austerity periods. Thailand's overcentralized system did not capitalize on useful information from line agencies and lower levels of government. Donors play a central role in spending outcome in the three African countries. Donors provided incentives for short-term fiscal discipline, but the imposed spending cuts impeded the prioritizing of expenditures and multiple donor projects fragmented budgets. Donor conditionality on the composition of expenditures and donor-driven attempts to improve technical efficiency, were ineffective. Lack of transparency and accountability meant rules were not enforced and budgets were often remade in an ad hoc, centralized way, so that the flow of resources to line agencies was unpredictable.Business Environment,Decentralization,Environmental Economics&Policies,Public Sector Economics&Finance,Health Economics&Finance,Poverty Assessment,Health Economics&Finance,National Governance,Public Sector Economics&Finance,Environmental Economics&Policies