Public Finance and Management

Empirical work suggests the presence of a public sector wage premium. This paper investigates the theoretical reasons for the presence of such a premium. the results of the paper are consistent with the higher premium paid to women and with the fact that the premium decreases with skills. the key insight of the paper is that job security undermines the incentive to work hard and forces the public sector to pay higher wages. One implication of the paper is that the public sector wage premium can be used as an indicator of inefficiency of the public sector.

This symposium examines the issues related to budget system reform in developed and developing countries. Based on the experience of recent attempts to reform in transitional countries, the first paper in the symposium outlines a three-pronged strategy for budget system reform. the second paper in the symposium examines the use of budgetary controls and procedures and argues that the trend is for these controls and procedures to become less complex over time. the third paper in the symposium examines the reoccurring problems of reforming the budgetary process in the United States and suggests improvements to the current federal budget process. the last paper in the symposium examines whether forecasts of federal revenues are systematically biased.

This paper examines the process of budget system reform implied by moving from traditional centralized input-oriented systems to more modern devolved performance-based systems. Based on the experience of recent attempts at this reform in emerging countries, the required sequencing of steps in this process is stressed. the strategy outlined involves a three-prong approach, requiring measures to increase the flexibility in the agency operating environment, provide more certain resourcing for spending agencies, and exert pressure on agencies to improve their performance. the paper stresses firstly, the need to progress on all three fronts simultaneously, and secondly, to base these reforms on a firm platform of agency management skills. the need to attain some basic public expenditure management thresholds in the area of restructuring the budget and its classification, improving the accounting system, developing a financial management information system, and strengthening internal financial management skills, is highlighted.

The use of expenditure needs, sometimes referred to as “expenditure norms”, “budgetary norms”, or “minimum standards”, is important in the formulation of budgets and, especially, in the establishment of transfer and grant formulae. Minimum standards are also used by central governments to control expenditure policies of subnational governments, often with the goal of protecting and enhancing national priorities. However, despite the continued wide use of expenditure norms, there are many aspects there are not fully understood. Perhaps the most basic issue is the actual construction of the norms. in this paper we examine what some countries have been doing to bring a more accurate assessment of their expenditure needs. We argue that the broad trend across most all countries is for budget controls and procedures to become less complex, and this tendency is observed throughout the assessment of expenditure needs process, including the design of grant formulae. Indeed, perhaps the major trend is to use simpler methods of expenditure needs where rules are clear for every component of the process and for all participants in the process. the consensus also appears to be that traditional budget processes should place a greater emphasis on the outcomes achieved by government spending units and the evaluation of managers and personnel according to these outcomes rather than controlling ex ante expenditure control, and that expenditure needs assessment can help in this process.

The authors examine the enduring difficulties of reforming the budgetary process, explain some of the causes of these difficulties and recommend budget reforms as starting points to improve U. S. federal government budgeting. They also report on initiatives of the Bush Administration and Congress to implement performance measurement in federal management and budgeting.

Feenberg et al. (1989) apply a simple regression-based method to test the rationality of state revenue forecasts. Using the same regression-based methodology, we test the rationality of federal revenue forecasts for fiscal year 1802 through 2001. We find that Treasury forecasts of federal revenues satisfy the conditions of weak rationality.