PUBLIC SECTOR GOVERNANCE AND …

1 PUBLIC SECTOR . GOVERNANCE AND. accountability series . FISCAL. MANAGEMENT. Edited by ANWAR SHAH. FISCAL. MANAGEMENT. Introduction to the PUBLIC SECTOR GOVERNANCE and accountability series Anwar Shah, series Editor A well-functioning PUBLIC SECTOR that delivers quality PUBLIC services consistent with citizen preferences and that fosters private market-led growth while managing fiscal resources prudently is considered critical to the World Bank's mission of poverty alleviation and the achievement of Millennium Development Goals. This important new series aims to advance those objectives by disseminating conceptual guidance and lessons from practices and by facilitating learning from each others' experiences on ideas and practices that promote responsive (by matching PUBLIC services with citizens' preferences), responsible (through efficiency and equity in service provision without undue fiscal and social risk), and accountable (to citizens for all actions) PUBLIC GOVERNANCE in developing countries.

2 This series represents a response to several independent evaluations in recent years that have argued that development practitioners and policy makers dealing with PUBLIC SECTOR reforms in developing countries and, indeed, anyone with a concern for effective PUBLIC GOVERNANCE could benefit from a synthesis of newer perspectives on PUBLIC SECTOR reforms. This series distills current wisdom and presents tools of analysis for improving the efficiency, equity, and efficacy of the PUBLIC SECTOR . Leading PUBLIC policy experts and practitioners have contributed to the series . The first seven volumes in the series (Fiscal Management, PUBLIC Services Delivery, PUBLIC Expenditure Analysis, Tools for PUBLIC SECTOR Evaluations, Macrofederalism and Local Finances, International Practices in Local GOVERNANCE , and Citizen-Centered GOVERNANCE ) are concerned with PUBLIC SECTOR accountability for prudent fiscal management; efficiency and equity in PUBLIC service provision; safeguards for the protection of the poor, women, minorities, and other disadvantaged groups; ways of strengthening institutional arrangements for voice and exit; methods of evaluating PUBLIC SECTOR programs, fiscal federalism, and local finances.

3 International practices in local GOVERNANCE ; and a framework for responsive and accountable GOVERNANCE . PUBLIC Services Delivery PUBLIC Expenditure Analysis Edited by Anwar Shah Edited by Anwar Shah Tools for PUBLIC SECTOR Evaluations International Practices in Local Edited by Anwar Shah GOVERNANCE Edited by Anwar Shah Macrofederalism and Local Finances Citizen-Centered GOVERNANCE Edited by Anwar Shah Matthew Andrews and Anwar Shah PUBLIC SECTOR . GOVERNANCE AND. accountability series . FISCAL. MANAGEMENT. Edited by ANWAR SHAH. THE WORLD BANK. Washington, 2005 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW.

4 Washington DC 20433. Telephone: 202-473-1000. Internet: E-mail: All rights reserved 1 2 3 4 08 07 06 05. The findings, interpretations, and conclusions expressed herein are those of the author(s) and do not necessarily reflect the views of the Executive Directors of the International Bank for Reconstruction and Development / The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgement on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries.

5 Rights and Permissions The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The International Bank for Reconstruction and Development / The World Bank encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly. For permission to photocopy or reprint any part of this work, please send a request with complete information to the Copyright Clearance Center Inc., 222 Rosewood Drive, Danvers, MA 01923, USA; telephone: 978-750-8400; fax: 978- 750-4470; Internet: All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2422; e-mail: ISBN-13: 978-0-8213-6142-9.

6 ISBN-10: 0-8213-6142-2. eISBN: 978-0-8213-6143-6. DOI: Library of Congress Cataloging-in-Publication Data Fiscal management / edited by Anwar Shah. p. cm. ( PUBLIC SECTOR , GOVERNANCE , and accountability series ). Includes bibliographical references and index. ISBN 0-8213-6142-2 (pbk.). 1. Government productivity Evaluation. 2. Country services Evaluation. 3. Municipal services Evaluation. 4. Budget. 5. Finance, PUBLIC . 6. Expenditures, PUBLIC . I. Shah, Anwar. II. World Bank. III. series . 2005. dc22. 2005043245. 12. Contents Introduction to the PUBLIC SECTOR GOVERNANCE and accountability series ii Foreword xi Preface xiii Acknowledgments xv Contributors xvii Abbreviations and Acronyms xx Overview xxi by Anwar Shah Budgeting Institutions 1 and PUBLIC Spending 1.

7 By J rgen von Hagen Ex Ante Controls 3. Political Systems: Competition and accountability 6. Limiting the Common Pool Problem: The Budgeting Process 12. Institutional Design of the Budgeting Process 19. Institutional Reform 24. v vi Contents CHAPTER. 2 Performance-Based Budgeting Reform: Progress, Problems, and Pointers 31. by Matthew Andrews Introduction 33. Progress 36. Problems 41. Points for Proceeding 52. Conclusion 66. 3 Simple Tools for Evaluating Revenue Performance in a Developing Country 71. by Mahesh Purohit Introduction 71. Concepts and Methodology 73. Database and Empirical Estimates 78. Summary of Conclusions and Policy Prescriptions 80.

8 4 Evaluating PUBLIC Expenditures: Does It Matter How They Are Financed? 83. by Richard M. Bird The Orthodox Tradition 85. The Marginal Cost of PUBLIC Funds 92. Are PUBLIC Funds Always Costly? 93. Efficiency and Equity 96. The Wicksellian Connection 99. 5 Guidelines for PUBLIC Debt Management 109. by the International Monetary Fund and World Bank Staff What Is PUBLIC Debt Management and Why Is It Important? 109. Purpose of the Guidelines for PUBLIC Debt Management 111. Summary of the Debt Management Guidelines 113. Discussion of the Debt Management Guidelines 117. Contents vii CHAPTER. 6 Looking Beyond the Budget Deficit by Homi Kharas and Deepak Mishra 151.

9 Debt and Deficit: Some Simple Algebra 153. Size of Hidden Deficits 154. Sources of Hidden Deficits 158. Concluding Remarks 160. Addressing Contingent Liabilities and Fiscal Risk 163. 7 by Hana Polackova Brixi Current Risk Exposures: Examples from New EU. Member States 169. PUBLIC Risk in Private Infrastructure 171. Local Government Risk 175. Implications for Fiscal Management 179. Concluding Remarks 188. 8 On Measuring the Net Worth of a Government by Matthew Andrews and Anwar Shah 191. The Three Dimensions of Government Value 193. Incentives Associated with Short-Run Evaluations and Concern for Government Value 196. Choosing Tools That Measure and Report on Net Worth in All Its Dimensions 198.

10 Conclusion: Accounting and Reporting for Government Net Value 204. 9 On Getting the Giant to Kneel: Approaches to a Change in the Bureaucratic Culture 211. by Anwar Shah Introduction 211. Why the Road to Reforms Remains a Field of Dreams in Developing Countries 212. The Genesis of Experiences of Industrial Countries 216. Results-Oriented Management and Evaluation Chain 218. Implications of ROME for Civil Service Reform 219. viii Contents Experience with ROME 221. Beyond ROME: Measuring Performance When There Is No Bottom Line 224. Epilogue: ROME A Road Map to Wrecks and Ruins or to a Better Tomorrow? 225. CHAPTER. 10 A Framework for Evaluating Institutions of accountability 229.