The politics within institutions for regulating public spending: conditional compliance within multi-year budgets
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The politics within institutions for regulating public spending: conditional compliance within multi‑year budgets Bernard Steunenberg1 Accepted: 30 October 2020 © The Author(s) 2020
Abstract Multi-year budget frameworks are often considered as instruments for controlling spending, including in the context of the European Union. This paper shows that the effects of multi-year budgeting depends on several conditions, some of which, may lead to more rather than less spending. The analysis is based on a model of a finance minister’s decision to enforce a previously accepted budget ceiling in subsequent negotiations with a spending minister. The analysis takes account of uncertainty about preferences in these negotiations, positive transaction costs to the finance minister, and the possibility of political mediation through the prime minister. The findings of this paper show that compliance with budget frameworks improves under temporarily stable preferences (e.g. the absence of external shocks), more homogenous preferences within the government (e.g. majoritarian governments in contrast to coalition government), preference similarity between the finance minister and the prime minister (in case of mediation), and increasing transaction costs. In other circumstances, multi-annual frameworks will not be able to block any upward pressure on expenditures. Keywords Public spending · Multi-year budgets · Budgetary politics · Budget control · Political decision-making · Rules · Compliance JEL Classification D73 · H61 · C72
* Bernard Steunenberg [email protected] 1
Institute of Public Administration, Leiden University, P.O. Box 13228, 2501 EE The Hague, the Netherlands
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1 Introduction Multi-year budgets are broadly seen as a way to reduce the upward pressure on government expenditures during budget negotiations (Anderson and Minarik 2006). Various countries, including Sweden (Ljungman 2007), the Netherlands (Bos 2008), New Zealand, and the United States, use multi-year or multi-annual budgets or budgetary caps to control government expenditure. Separating the choice of the overall budget from the choice of budget allocations is expected to constrain subsequent distributional choices. This budgeting framework fits into a broader literature that indicates that institutions affect economic and fiscal policy outcomes (Persson et al. 1997; Persson and Tabellini 2003, 2004; Von Hagen and Harden 1995; Volkerink and De Haan 2001; Hallerberg et al. 2009; Blume and Voigt 2013; Caruso et al. 2015; Efendic et al. 2011). Less clear is why multi-year expenditure guidance will provide a ‘binding’ ceiling on annual expenditures. This concern is reflected in a recent analysis by the European Commission. Based on a review of all national budgeting procedures in the EU, the Commission recommends that member states strengthen their national medium-term budgets by introducing ‘more binding elements’ (European Commission 2012: 6). In other research, Reuter (2015: 77) finds that for 11
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