Balancing budget control and flexibility: the central finance agency as ‘responsive regulator’

Austerity and budget execution: control versus flexibility

“…On the other hand, budget execution should accommodate unforeseen contingencies and have sufficient space for flexibility in order to avoid waste, inefficient spending and underfunding of foreseen activities (Cain et al, 2004;Di Francesco and Alford, 2017;Hackbart and Ramsey, 1999;Howard, 1968;McCaffery and Mutty, 1999;Thompson and Zumeta, 1981). Flexibility in budget execution entails both horizontal and vertical dimensions (Di Francesco and Alford, 2016).…”

“…Thus, the need to deal with consolidation measures is likely to reinforce or bring back such previously used top-down controls over expenditure details by the MoF (Krause, 2009;Raudla et al, 2015a, b;Schick, 1964Schick, , 1988. The MoF is likely to resort to the known-and-tested approaches to budget control, at the expense of vertical and horizontal flexibility (Di Francesco and Alford, 2017;Krause, 2009). In addition to the routine ex ante controls over expenditures exercised by the MoF, the context of austerity may give rise to more interventionist approaches by the MoFin the form of reducing the money available for the spending ministries during the fiscal year (Krause, 2009;Schick, 1988).…”

“…In order to act in a more agile way in a complex context presented by austerity, decision-making over budget details would have to be taken by those who have the best information about them (Cothran, 1993;Schick, 1988). The better the match between the decision-rights over specific spending decisions and the situation needing a response, the more informed the resource use decisions are likely to be (Cothran, 1993;Di Francesco and Alford, 2017;Krause, 2009;Schick, 2001). Conversely, the longer the distance between both the situation in which a concrete spending decision has to be made and the officials with decision-making authority over that spending, the less informed that decision is likely to be (Di Francesco and Alford, 2016).…”

“…Third, the increase in both vertical and horizontal flexibility in response to austerity may be driven by attempts to increase the efficiency of spending in face of heightened scarcity of resources. Devolving decision-making authority to those who are closer to the situations that need to be dealt with in the face of austerity can facilitate efficient deployment (and re-JPBAFM 34,2 deployment) of resources (Di Francesco and Alford, 2017;Douglas and Franklin, 2006;Dunsire and Hood, 1989;Franklin and Douglas, 2003;Tarschys, 1986). A greater horizontal flexibility has the potential to enhance spending efficiency by enabling managers to avoid the end-of-year spending crunch (Di Francesco and Alford, 2016).…”

Performance Budgeting and Medium-Term Expenditure Frameworks: A Comparison in OECD Central Governments

“…Furthermore, there is a need to seek an optimal balance between flexibility and control. Di Francesco and Alford (2016) proposed "responsive regulation" perspectives consisting of reshaping the types of rules and the way they are applied, rather than fewer rules, as a preferred means of enabling greater flexibility while ensuring budget control.…”