Dr. Allen Schick on Budget Tools and Rules
Posted by Richard Allen
Professor Allen Schick led an FAD-seminar on "Analytic Tools Versus Decision Rules for Fiscal Policy" on September 19, 2007. Many analytic concepts can be formulated into rules that guide or constrain decisions on the budget or fiscal policy. Alternatively, analytic tools can be used to inform decisions, but not to dictate how governments allocate resources.
- Baseline projections that estimate the future cost of current policies.
- Medium-term expenditure frameworks that limit future spending.
- Fiscal rules (e.g., the EU's Stability and Growth Pact) that limit key fiscal aggregates, such as the fiscal deficit.
Some tools could potentially be transformed into rules, but have not been (at least not yet):
- Herbert Stein's proposal to allocate the budget as a share of GDP.
- The Tax Expenditure Budget and the Regulatory Budget.
- Program Budgets.
- Contingent liabilities and other sources of fiscal risk.
- Performance-based budgets.
The seminar gave rise to interesting questions such as:
What use should be made of fiscal/budget rules in low-income countries?
Rules inevitably limit discretion over spending and limit flexibility - so should governments be parsimonious is devising new rules?
What kind of rules generate efficient spending decisions?
Dr. Schick's presentation is available here: Download drshick091907.pps