In this essay I will describe the main characteristics of the political and institutional context of Chile and its budget system, trying to identify some relations with the most important budget theories reviewed in the lectures. In the next place, I will recognise which of the institutional reforms advocated by Blöndal (2003) have been implemented in the country, and which have not. Finally, I will present some conclusions.
General context
Chile is a democratic presidential republic with a multi-party system that, in practice, is a two-party one due to the electoral arrangement. Binomial system –in which two candidates are elected per each district, causing an over representation of the second majority list- was adopted in order to foster political stability in the democratization process. These characteristics have had impact in the strategies that the government has adopted to develop the budget and the economy: after the end of the dictatorship the year 1990, Chile has been recognized inside the Latin-American context for maintaining a strong commitment to a responsible economic management, led by high level economic teams . The electoral system, added to the great centralization of the budget process that I will explain later, are strong reasons to follow a strict budget discipline compared with countries with minority governments or with many parties and no one close to another (Hallerberg, 2004). In this case, the economic performance of the government is also an important issue for the electorate, making the governing coalition to be cautious regarding the possibility of an electoral sanction if it fails in the management of economic policies.
To describe the Chilean budgeting system I will use as reference a report elabo...
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Blöndal Jón and Curristine Teresa (2004). Budgeting in Chile. OECD Journal on Budgeting – Volume 4 – No. 2.
Davis Otto, Dempster M. A. H. and Wildavsky Aaron (1966). A Theory of the Budgetary Process. The American Political Science Review, Vol. 60, No. 3, pp. 529-547.
Hallerberg Mark (2004). Domestic Budgets in a United Europe: fiscal governance from the end of Bretton Woods to EMU. Ithaca, Cornell University Press.
Jürgen von Hagen and Ian Harden (1995). Budget processes and commitment to fiscal discipline. European Economic Review, No.39, pp. 771-779.
Management Control Division of the Finance Ministry (2003). Systems of Management Control and Results-Based Budgeting. The Chilean Experience.
Schick Allen (2001). The Changing Role of the Central Budget Office.”OECD Journal on Budgeting. Volume 1 N°1. Organisation for Economic Co-Operation and Development (OECD).
Mikesell, J. L. (2010). Fiscal administration: Analysis and applications for the public sector (8th ed.: 2010 custom edition). Mason, OH: Cengage Learning
The overall objective of the budget is to create a “leaner, meaner and more efficient” economy, and...
At the beginning of the 20th century, government budgeting was a decentralized process more conducive to the small government ideals at that time. The executive branch was less involved in the process and less influential in terms of funding decisions. There were no definitive procedures and no real central authority. The submission process was informal and chaotic. Each agency subm...
McManus, Doyle. “Drawing Budget Battle Lines.” Editorial. Los Angeles Times. Los Angeles Times, 14 Apr. 2011. Web. 5 June 2011. .
A key element of the Government's medium term fiscal strategy is to achieve budget surpluses, on average, over the medium term. This objective al...
Top-down budgeting is the preferred method of budgeting for government agencies and many organizations (Ljungham). The methodology of top-down budgeting is described as “dominated by top members of the executive branch and the legislative branch” (Williams & Calabrese, 2011, 178). The methodology entrusts top members to make annual budgeting decisions for their organizations. In many instances, top members also use this time to set annual program or department goals and targets. Top members make these decisions without solicitation of input from bottom levels of an organization. This can result in operational and logistical constraints in the lower levels of an organization when plans are implemented (Williams & Calabrese, 2011). Additionally, it can serve as a source of frustration for staff when uninformed budgeting decisions create consequences. This is particularly true when staff is tasked with making things work in the aftermath of budgeting decisions, despite having clear or attainable goals and budgets. Like all budgeting methodologies, there are benefits and difficulties.
Wildavsky, A., & Caiden, N. (2004). The new politics of the budgetary process (5th ed.). New York, NY: Pearson/Longman.
Since there is criticism towards traditional budgeting, the different approach to the traditional budget has gained its momentum. Over the years, traditional budgeting lost its relevance with the modern business world, and it no longer satisfies the needs of the managers. With new budgetary systems alternatives, it will suit better for the need of the modern business.
Participative budgeting has the advantage of transferring information from the subordinate to their superior This knowledge is likely to be more reliable and accurate as the subordinate has direct contact with the activity and therefore is in the best position to make budget estimates. Participative Budgeting also gives subordinates the opportunity to discuss organisational issues with superiors, in which an exchange of information and ideas can help to solve problems and agree future actions (Nouri & Parker 1998). This transferral of information is important particularly when dealing with a matter of high task difficulty as, the more difficult a task, the greater the need for consultation with subordinates. Participative budgeting has a higher performance rate when dealing with more difficult and more volatile tasks than non consultative budgeting (Lau & Tan 1998)
Zero-based budgeting carries many advantages. An important advantage of zero-based budgeting is it will cause a manager or department head to be more cognoscente of their financial requirements of their department. This will eliminate un...
Ryan, P. (2011, December 7). A Brief History of Budgeting in the Nation's Capital. The Federal
Line item budgeting categorizes various expenses and places them in list format on a document for budgetary purposes. This type of budgeting is considered the heartbeat of budgeting due to the systematic method by which it controls revenue and expenses, this is made evident when Tyer and Willand (1992), pointed out “Statutory or administrative controls could be imposed on the transfer of funds from one-line item to another, or between broad categories of expenditure.” According to Schick (1971), “line item budgets were attractive to legislative officials because they did not focus explicit attention on substantive policy issues or choices.”
A company's budget serves as a guideline in planning and committing costs in order to meet tactical and strategic goals. Tactical goals such as providing budgetary costs for daily operations, and strategic objectives that include R&D, production, marketing, and distribution are all part of the budgeting process. Serving as a guideline rather than being set in stone, the budget is a snapshot of manager's "best thinking at the time it is prepared." (Marshall, 2003, p.496) The budget is a method in which to reign-in discretionary spending, and will likely show variances between what costs have been anticipated and what costs are actually incurred.
As we had learned in our class of Administration of Financial Resources (PAD 343.02) budget can be understood as a collection of documents that describes what had been accomplished as a result of expenditure, it also describes the current situation of a government with respect to revenues and previews expenditure, and it is used for submission from the Executive branch to the Legislative branch for appropriation or approval. In other words, a budget is a “systematic plan which indicates where the money will come from, how much will be spent, and what it will be spent for. A budget is a fiscal plan for a given period of time.” and I have to add to this that there is a variety of budget formats. Even though this is a very complex explanation
e budget is a document which allows an organisation to estimate income and expenditure over a certain time period usually the previous year and altered to accommodate any foreseeable changes. Many organisations, individuals plan their financial activities by preparing budgets. For an organisation to be successful, its crucial to plan its financial activities in the future well in advance. It is important to estimate its income and expenditures (Ibid, 2005) using data from past events and allow for anticipated future trends.