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On the Use of Budgetary Norms as a Tool for Fiscal Management

Author: JAMES ALM AND JORGE MARTINEZ-VAZQUEZ
Published in PFM, Vol. 2 No. 3

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.

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