Public Budgeting

Decision Making in Public Budgeting

The fact that public budgets arise from a collective decision presents several challenges. First, consider the lessons from the formal theory literature about the multidimensionality of a policy space. A policy dimension, to be clear, is simply one line on which one can rank a given option. The traditional dimension used in many studies is a simple left–right one, but in budgeting, one can imagine many such dimensions that correspond to spending on a given subject. One person may want the government to spend a lot on health care but only a little on defense, for example. The formal theory literature tells us that when one can line up the preferences of actors along one dimension, there is a stable outcome that arises from a simple majority vote. When one has multiple dimensions, however, several outcomes are usually possible. Moreover, these outcomes are not “stable”; that is, they will lose to one or more other feasible outcomes, which in turn are not stable either.

All this means that the rules that structure the way decisions are taken on the budget are crucial. If the rule is to stop consideration of the budget after just one vote, then one would want to know who gets to decide the content of that vote. This “agenda setter” will have the ability to select an outcome closest to his or her preferred outcome even though there may be other outcomes that can beat it in a one-to-one majority vote. To move beyond this rather abstract discussion to practical implications, a student of public budgeting will want to know who has the right to propose a given budget, what the rules are to change the budget, how high the threshold is to pass the budget, and what happens if the institutions fail to pass the budget. For example, the president may propose the budget, a congress will then consider the budget, and the budget may then have to be passed with only a simple majority to become law. In a country such as Chile, the president does propose the budget, the congress does not have the right to make amendments that raise aggregate spending beyond what the president proposes, it takes a simple majority in congress to pass the budget, and the president's budget simply becomes law if the congress cannot pass it. In this case, the president is easily the most important player in the budget process. This contrasts with a country such as Paraguay, where the congress can make whatever amendments it wants to the president's budget and where the default budget is the previous year's budget rather than the one the president proposed. In this case, the congress has a stronger hand to play.

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