Narrative Report

Basic Premises of Public Spending Policies * a. Fiscal policy is the use of government revenue collection (taxation) and expenditure (spending) to influence the economy. The two main instruments of fiscal policy are government taxation and expenditure. Changes in the level and composition of taxation and government spending can affect the following variables in the economy: * a. Aggregate demand and the level of economic activity; * b. The pattern of resource allocation; * c. The distribution of income;

* b. The primary goal of government spending is to raise aggregate consumption. Due to the higher level of government spending, income of consumers will expand, and consequently consumption expenditure will rise.

* John Maynard Keynes, 1st Baron Keynes of Tilton in the County of Sussex (5 June 1883 – 21 April 1946) was a British economist whose ideas have profoundly affected the theory and practice of modern macroeconomics, and informed the economic policies of governments. He built on and greatly refined earlier work on the causes of business cycles, and is widely considered to be one of the founders of modern macroeconomics and the most influential economist of the 20th century. His ideas are the basis for the school of thought known as Keynesian economics, as well as its various offshoots. * Keyenes: “The government should help-out the economy”. * Keynesian Economics was developed during the “Great depression”. * Keynes believed that there was only one way out from the great depression, and that was for the government to start spending in order to put money into private-sector pockets and get demand for goods and services up and running again. As it turns out, President Franklin D. Roosevelt gave this remedy a try when he started a massive public works program to employ a portion of the idle workforce. * * Concept of Pump Priming-it refers to the injection of government funds into the income stream in sufficient quantities and under proper circumstances in order to reverse the trend of anticipations and to generate recovery

* - this emergency tool is a temporary device to restore the balance in the economic system during the cyclical downturn, after which the system is expected to operate under its own power, this implies that the multiplier effect will come into play and the accelerator will reinforce the increases in income, consumption and investment. * E.g. Ememrgency Economic Stimulus Act of 2008
Deficit Financing, practice in which a government spends more money than it receives as revenue. Although budget deficits may occur for numerous reasons, the term usually refers to a conscious attempt to stimulate the economy by lowering tax rates or increasing government expenditures. * Adolph Wagner (March 25, 1835 – November 8, 1917) was a German economist and politician, a leading Kathedersozialist (academic socialist) and public finance scholar and advocate of Agrarianism.
Wagner's Law of Increasing State Activity * It states that demand for social goods and services tends to Increase relative to the demand for private goods as real per capita incomes rise. * In a low income economy, people utilized their real income on consumption of basic private good (food, clothing, shelter). As the economy advances, as the society’s wealth increases, and the basic wants have been largely satisfied, new need arise, most of it are public gods ( police, fire protection, highways, education)

* Cyril Northcote Parkinson (30 July 1909 – 9 March 1993) was a British naval historian and author of some sixty books, the most famous of which was his bestseller Parkinson's Law, which led him to be also considered as an important scholar within the field of public administration.
Parkinson’s Law * This law of organizational growth, which is especially pronounced among administrative staff, is based on two premises: (1) the psychological desire of individual officials to have more and more subordinates(but not rivals) and (2) the phenomenon that the personnel of an organization perform work for one another; * The law provides a realistic explanation to the rising cost of government, specifically the pyramiding organization of several government agencies.
Somer’s Principles of Government expenditures These are suggestion of Professor Harold Somer in arriving at appropriate expenditure policies.
1. Principle of Minimum expenditure * The government should spend the least it possibly can, consistent with the protection of its citizens. 2. Principle of Minimum Interference with Private Enterprise * Government spending should have a little interference with private enterprises. * It should not provide public works that would compete with established private firms * The government should not set up retail stores and factories.
3. Principle of Maximum Employment * The aim of the government expenditures is sometimes to raise the level of employment as high as possible.
4. Principle of Maximum advantage * Maximum advantage should be achieved at all times. The implication is that each public fund should be spent where the marginal social utility is the greatest. * Harold D. Smith presented his “Budgetary Commandments” in 1944. “The Budget as an instrument of legislative Control and Executive Management.” Public Administration Review IV (Summer 1944) 181-188
SMITH’S BUDGETARY REQUIREMENTS * These historical budget principles are substantially as follows: * 1. Publicity – The main stages of the budget process, which include executive recommendation, legislative considerations and action, budget execution, should be made public. * 2. Clarity – The budget should be understandable to every citizen. As was said by a British writer in 1764: “The Administration has condescended… to explain the budget to the clearest capacity” * 3. Comprehensiveness – The budget should contain expenditures and revenues on a gross basis, reflecting all governmental activities without exception, and should show the surplus available for debt retirement or the deficit to be met by new revenue legislation or borrowing * 4. Budget Unity – All receipt should be recovered into one general fund for financing all expenditures. This principle condemns ear marking of revenue for specific purposes of expenditures, except incases of trust accounts, or in cases where a special and direct relationship exists between receipts and expenditures. * 5. Detailed Specification – Receipts and appropriations should be expressed in detailed specifications. Transfer of items should be permitted only in exceptional cases. * 6. Prior Authorization – The budget should be submitted, considered, and acted upon in advance of the period during which the expenditures are to made, it should include estimates for all foreseeable needs, thus reducing as far as possible request for supplemental and deficiency appropriations. Budget execution should stay strictly within the legislative authorization and should be checked by an auditing agency reporting to the legislature. * 7. Periodicity – Appropriations should be authorized for a definite period of time. An appropriation not used at the end of the period should generally lapse or be re-appropriated with the specific amount and purpose detailed. * 8. Accuracy – Budget estimates should be as accurate as possible and there should be no “padding” of expenditures estimates or providing for hidden reserves by underestimating revenue. * ROLE OF THE PUBLIC SECTOR AND GOVERNMENT BUDGETING IN THE PHILIPPINES * Budgetary Cycle * 1. Budget Preparation * 2. Budget Legislation * 3. Budget Execution * 4. Budget Accountability * This starts with the Budget Call and ends with the President’s submission of the proposed budget to Congress. *