OECD Journal on Budgeting

The OECD Journal on Budgeting is published three times per year. It draws on the best of the recent work of the OECD Working Party of Senior Budget Officials (SBO), as well as special contributions from finance ministries, academics and experts in the field and makes it available to a wider community in an accessible format. The journal provides insight on leading-edge institutional arrangements, systems and instruments for the allocation and management of resources in the public sector.

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Long-term budgeting: A cautionary tale from U.S. experience

There is a growing tendency, among central budget-makers and commentators, to argue budgets should be made for the long-term, rather than the traditional annual budget. This tendency is especially strong in the United States, where it has become virtually a conventional wisdom. This article explains, first, why that approach fits very poorly with most of the goals of budgeting. It then evaluates U.S. experience with approximations of long-term budgeting of three types: i) medium-term limits on discretionary spending, ii) the Social Security programme, and the iii) Medicare programme. That experience illustrates the reasons why long-term budgeting would not be a positive reform. They include the fantastical nature of many long-term forecasts, strong incentives for both deception and self-deception about the effects of planned budget totals, and ignoring the basic task of budgeting, which is to reconcile preferences about policy details to preferences about budget totals in a way that considers each.


Keywords: Efficiency, Representation, Long-term, United States, Health, Forecasting, Accountability, Pensions
JEL: H68: Public Economics / National Budget, Deficit, and Debt / Forecasts of Budgets, Deficits, and Debt; H50: Public Economics / National Government Expenditures and Related Policies / National Government Expenditures and Related Policies: General; H41: Public Economics / Publicly Provided Goods / Public Goods; H11: Public Economics / Structure and Scope of Government / Structure, Scope, and Performance of Government
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