This chapter begins from the premise that budgeting procedures have important consequences for fiscal stability. A budgeting procedure that enables a government to commit itself to fiscal discipline is an essential condition. Commitment mechanisms are important during the three levels of the budget process – preparation of the budget within the government (including planning), passage of the budget law through parliament, and execution of the budget.

We examine this proposition in two versions. Following the fiscal institutional approach discussed in the previous chapter, we begin with a consideration of the “centralization” of the budget process in all countries. Specifically, dominance of the prime minister or finance minister over the spending ministers in setting budget parameters, limitations to modifications of the budget proposal by the legislature, and limitations to budget changes during the execution all centralize the budget process.

The previous chapter also developed the concept of “fiscal governance,” which considers whether some set of fiscal institutions is appropriate for one set of countries but not for another. Specifically, some countries benefit from a discretionary system where the finance minister is the most important player at all stages of the budget process. Such countries are known as delegation states because other players in the budget process delegate to the finance minister the power to set, monitor, and correct the budget. Other countries benefit most from setting multi-annual targets that include clear fiscal procedures for what to do under a variety of contingencies.