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 Committee 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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The coverage of aggregate expenditure ceilings

Aggregate expenditure ceilings are today a feature of budgeting in many OECD countries. They are typically used either to enforce a trend-based expenditure policy, or to gradually reduce the size of government. With the increased popularity of expenditure rules, aggregate ceilings are also required to give effect to these rules. This article focuses on the key design issue of the coverage of aggregate expenditure ceilings – that is, should they cover the totality of government expenditure, or is it legitimate to exclude certain categories of expenditure? It is suggested that the distinction between “determinate” and “indeterminate” expenditure is crucial to properly answering this question. It is also argued that the appropriate coverage of aggregate expenditure ceilings is different during expenditure planning (budget preparation) and during budget execution.

JEL classification: E620, H610

Keywords: Expenditure ceilings, top-down budgeting, determinate expenditure, indeterminate expenditure, automatic changes, trend-based expenditure policy, contingency reserve, forecasting margin, sequestration, compensation mechanism, welfare cap


JEL: H61: Public Economics / National Budget, Deficit, and Debt / Budget; Budget Systems; H62: Public Economics / National Budget, Deficit, and Debt / Deficit; Surplus
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