Fiscal Rules, Fiscal Institutions, and Fiscal Performance



FISCAL RULES, FISCAL INSTITUTIONS AND FISCAL PERFORMANCE

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Delegation

With delegation, the budget process lends special authority to a “fiscal
entrepreneur” with the authority to set the broad parameters of the budget
and to assure that all other participants observe them. An effective
“entrepreneur” has the ability to monitor the other participants and to use
selective punishments against any defectors. Among the cabinet members, the
“entrepreneur” is typically the finance minister. Since the finance minister is
not bound by individual spending interests as much as the spending ministers,
and since the finance minister typically is charged with drafting the revenue
budget, it is plausible to assume that the finance minister takes the most
comprehensive view of the budget among the members of the executive.

In practice, delegation can take a variety of forms. In the French model, the
finance minister, backed by the prime minister, has strong agenda-setting
powers over the other cabinet members. The British budget process evolves as
a series of bilateral negotiations between the spending departments and the
finance minister, in which the latter has strong bargaining power based on
superior information, seniority, and political back-up from the prime minister.
The German model of delegation gives the finance minister veto power for all
budgetary decisions in cabinet meetings.

Under the delegation approach, setting budget targets and drafting the
budget proposal is mainly the responsibility of the finance ministry, which
monitors the individual bids, negotiates directly with the spending
departments and approves the bids submitted to the final cabinet meeting.
Unresolved conflicts between individual spending and the finance ministers
are typically arbitrated by the prime minister.

At the legislative stage, the delegation approach lends large agenda-setting
powers to the executive over parliament. One important instrument here is to
limit the scope of amendments parliamentarians can make to the executive’s
budget proposal. In France, for example, amendments cannot be received
unless they reduce expenditures or create a new source of public revenues. A
second element concerns the voting procedure. The French government, for
example, can force the legislature to vote on large parts of or the entire budget
in a
block vote, with only those amendments considered that the executive is
willing to accept. In the UK, the executive can make the vote on the budget a
vote of confidence, thus raising the stakes for a rejection considerably. The
position of the executive can also be strengthened by giving the finance
minister veto power over the budget passed by the legislature, as in Germany
and Spain.

A final element concerns the budgetary authority of the upper house. Where
both houses have equal budgetary authority, as in Italy or Belgium, finding a
compromise between the two houses is a necessary part of the budget process.



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