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can make unlimited amendments to the executive’s budget proposal, when
spending decisions are made in legislative committees with narrow and
dispersed authorities (“Balkanisation of Committees,” see Crain and Miller,
1990), and when there is little guidance of the parliamentary process either by
the executive or by the speaker. Elements of centralisation protect the
executive’s or, in presidential systems, the budget committee’s position as an
agenda setter in the legislature.
At the implementation stage, elements of centralisation assure that the
budget law effectively constrains the spending decisions of the executive. The
weaker the constraints the budget law creates for actual spending decisions
during the year, the more fragmented is the budget process. The finance
minister’s ability to monitor and control spending flows during the fiscal year
is critical at this stage. Another important element is the rule concerning
changes of the budget law during the year. The easier it is to change the
budget law or to replace it by a new one, the less effective is the budget process
in constraining financial decisions of the government and solving the common
pool problem. The frequent use of supplementary budgets during the fiscal
year is a strong indicator of fragmentation at this stage.
Transparency of the budget and the budget process is an important design
element on all three stages. Lack of transparency creates opportunities for
collusion among policy makers pursuing their own interests. It prevents
decision makers in the budget process from developing a comprehensive view
of the full spending and revenue consequences of their decisions. Transparency
requires that the budget documents are comprehensive and that expenditures
are clearly attributed to the relevant spending making units within the
government. It is promoted by clear accounting rules including for tax
expenditures and contingent liabilities such as guarantees. While it is
sometimes argued that intransparency strengthens the role of the finance
minister as a guardian of fiscal discipline (e.g. Milesi-Ferretti, 2000), lack of
transparency of the budget and the budget process prevails more regularly in
practice, when the finance minister is weak and the process very fragmented.
While the lack of transparency may be useful for a ministry in such
circumstances, this is clearly not a desirable design.3
Reviewing elements of centralisation in Europe, the US, Latin America and
Asia reveals that centralisation follows two basic approaches. The first is
centralisation based on “delegation” or vesting individual actors with special
strategic powers. The second is centralisation based on “contracts” or binding
agreements among all participants negotiated at the outset of the budget
process.
3 A prime example of this is the budget process in Japan, see Ichi (2000).