anywhere. However, a number of theoretical proposals, inspired by the success of delegation of monetary
policy to independent central banks, were put forward by the academia.^12
According to these proposals, a number of fiscal policy choices would be entrusted to a non-political
body. Wyplosz (2005) argues for instance that an independent fiscal agency could be mandated to
decide, every year, on the general government balance to be targeted in the Budget. The agency would
set the target with the view to achieve in the long run a debt ratio objective specified by the Parliament.
Whether there is a case for delegation of part of fiscal policy to such independent institutions is discussed
more in depth in Public Finance Report in EMU 2006.
Box 1 – Procedural rules of the budget process and budgetary outcomes
Economic literature has underlined the importance of the characteristics of the budgetary process to achieve a
level of aggregate expenditure consistent with overall macroeconomic constraints (see von Hagen 1992; von
Hagen and Harden 1994; Poterba and von Hagen 1999; Strauch and von Hagen 2000; Hallerberg 2004). The
budget process is governed by a number of procedural rules laid down in law or constitution. These rules
establish the role of a limited number of participants which have to carry out their distinct tasks according to a
specified timetable. A key element of the process is related to the distribution of powers between the
government and the legislative branch and within the executive. Other important aspects concern which
ministry has the agenda-setting power, how possible disputes between Ministries can be solved and the
amendment power of the Parliament.
Among the desirable characteristics of the budget system, comprehensiveness, transparency and reliability are
particularly important. Comprehensiveness is ensured if the budget covers almost all of government
transactions. In practice, all public resources should be directed to a common pool from which expenditures are
decided according to policy priorities. In this context, the use of extra budgetary funds should be exceptional.
Transparency is notably achieved through a specification of the roles and responsibilities of all participants to
the budget process and publication of reports at different stages of the process (pre-budget report, infra-annual
monitoring reports, end-year re-port on compliance with plans, audit reports examined by Parliament). Finally,
the budget plans are considered re-liable if they are based on reasonable macroeconomic projections and if new
policies are assessed carefully and their future costs and implications taken into account on a multiyear planning
horizon.
Empirical research has looked at whether the key characteristics of the budget processes have an influence on
budgetary outcomes. For example, the pioneering study by von Hagen (1992) builds an index that captures the
degree of centralisation of the budget process. It covers the stages of: (i) budget formulation (including
restrictions on the budget and the relative position of the Minister of Finance vis-à-vis the spending ministers)
(ii) budget approval (focusing on the degree to which amendments in Parliament may increase the size of the
budget) and (iii) budget implementation. Alesina et al (1999) considered three different dimensions: (i) fiscal
constraints that may be conducive to fiscal discipline; (ii) hierarchical procedures and (iii) transparency of the
procedures. Both studies found evidence of a statistically significant link between the characteristics of the
budgetary procedures and budgetary outcomes.
Centralisation of the decision-making in the budgetary process helps addressing the common pool problem.
Several authors underlined that a high degree of centralisation is necessary to ensure a comprehensive view of
the budgetary implications of all spending requests, and that it forces participants to recognise the real costs and
benefits of each spending decision. Two main approaches to centralisation are generally identified (Hallerberg
and Von Hagen 1999). Under the delegation approach a single policymaker, usually the Finance Minister, can
significantly influence the budget process. Typically he is vested with agenda-setting power relative to other
ministries in the preparation stage. He is responsible for monitoring the implementation of the budget and can
correct deviations from plans. In countries adopting the delegation approach, the Parliament has generally a
limited role in amending the cabinet's proposals. In the contract approach all ministries take part in a negotiation
process leading to an agreement on a set of key fiscal figures and objectives, generally in a medium-term(^12) See notably Calmfors (2003) and Wyplosz (2005).