Public Budgeting and Fiscal Policy

Posted on Feb 21, 2025 in Economy

Budget Phases and Content

Government budgets are typically a sequence of annual steps. These budgets plan spending aligned with projected income. The phases include:

Budget Preparation

Led by the executive branch (government) through the ministries of economy and finance. This takes six to nine months, varying by country.

Discussion and Approval

Occurs between legislative chambers. This phase must conclude before the end of the year prior to publication.

Publication

A formal requirement for dissemination. Budgets are posted in the official state bulletin.

Execution

The implementation of the budgeted expenditures and revenue collection. This is managed by the executive branch as approved.

Control

Internal control by the executive branch throughout all phases, plus external audits by the court of accounts and legislative chambers.

Budget Content

Includes three key budgets:

  • Expenditure statements (by function, agency, or economic category).
  • Income statements (by source and economic classification).
  • Financial statements of state-owned companies.

Public Revenue and Taxes

Government revenue projections fund planned spending. This involves a mix of tax and non-tax revenue.

Tax Revenue

Taxes, fees, and special contributions are justified by the state’s power to require payments from citizens.

Taxes offer flexibility, allowing various combinations to achieve revenue targets:

  • Taxes: Coercive payments without direct compensation, required by law from economic agents to the state.

Direct Taxes

Levied on assets or income, considering the taxpayer’s circumstances.

Indirect Taxes

Levied on consumption, regardless of personal circumstances.

  • Special Contributions: Payments to local authorities related to increased asset values due to public actions.
  • Fees: Charges for specific services or activities that affect or benefit the taxpayer.

Fiscal Policy Instruments

Fiscal policy uses three main instruments:

  1. Public Spending: Directly impacts aggregate demand through programs like public works, personnel expenses, and transfers, influencing employment and production.
  2. Taxes: Influence disposable income, indirectly affecting consumption, investment, and aggregate demand.
  3. Transfers: Increase purchasing power for targeted groups, indirectly affecting aggregate demand through consumption and investment.