Fundamentals of Public Budgeting and Finance, 2nd Edition
Aman Khan
Contents
1 Introduction: Market System and the Role of Government 1
1.1 A Simple Illustration of How the Market System Operates 2
1.2 Market Failure and the Need for Government Intervention 4
1.3 Non-market Failure 43
1.4 Summary and Conclusion 43
References 49
Part I Budget Background: Elements of Public Finance 51
2 Elements of Taxation: Desirable Characteristics and Related
Measures 53
2.1 Need for Government Taxes 53
2.2 Desirable Characteristics of a Tax System 54
2.3 Optimal Tax Structure 73
2.4 Methods of Tax Collection 74
2.5 Incidence of Taxation 77
2.6 Summary and Conclusion 80
References 85
3 Elements of Government Expenditure: Growth, Causes,
and Limits 87
3.1 Need for Government Expenditure 88
3.2 Types of Government Expenditure 88
3.3 Growth in Government Expenditure 92
3.4 Causes of Growth in Government Expenditure 97
3.5 Limits to Growth in Government Expenditure 101
3.6 Optimal Government Expenditure 106
3.7 Summary and Conclusion 110
References 113
4 An Overview of Government Revenues: Sources, Measures,
and Alternatives 117
4.1 Primary Sources of Revenue 117
4.2 Other Sources of Revenue 151
4.3 Summary and Conclusion 157
References 163
Part II Budget Basics: Operating and Capital Budget 165
5 Understanding the Budget Process 167
5.1 Need for an Effective Budget Process 167
5.2 Understanding the Fund Structure 168
5.3 Budget as a Cyclical Process 173
5.4 Budget as a Political Process 192
5.5 Summary and Conclusion 195
References 199
6 Budget Systems: Underlying Structures and Characteristics 201
6.1 Budget Systems and Their Role in the Budget Process 201
6.2 Types of Budget Systems 203
6.3 Some Common Misconceptions 238
6.4 Summary and Conclusion 238
References 243
7 Capital Budgeting and Improvement Process 245
7.1 Characteristics of a Capital Budget 245
7.2 Types of Capital Assets 246
7.3 Capital Budgeting and Long-Term Planning 249
7.4 Capital Budgeting Process 251
7.5 Impact on the Operating Budget 276
7.6 Summary and Conclusion 277
References 281
8 Evaluating Capital Projects and Budget Decisions 283
8.1 Project Evaluation in Capital Budgeting 283
8.2 Methods of Project Evaluation 284
8.3 Summary and Conclusion 320
References 326Part III Budget Tools: Methods and Analysis 327
9 Capital Rationing and Budget Allocation 329
9.1 Need for Capital Rationing 329
9.2 Methods of Capital Rationing 331
9.3 Capital Rationing under Budget Constraints 341
9.4 Application Dilemma 359
9.5 Summary and Conclusion 359
References 366
10 Elements of Budget Forecasting 369
10.1 Background and Purpose 369
10.2 Forecasting Process 370
10.3 Forecasting Methods 374
10.4 Measuring Forecast Errors 404
10.5 Forecast Evaluation 405
10.6 Summary and Conclusion 406
References 412
11 Analyzing Revenue, Expenditure, and Economic Base 413
11.1 Analyzing Government Revenue 413
11.2 Analyzing Government Expenditure 423
11.3 Analyzing Economic Base 428
11.4 Summary and Conclusion 445
References 450
12 An Overview of Critical Issues and Challenges 451
12.1 The Deficit and Debt Problem 452
12.2 Expenditure Growth Controversy 455
12.3 The Balanced Budget Argument 456
12.4 Annual vs Biennial Budget Debate 457
12.5 A Capital Budget for the Federal Government 458
12.6 The Looming State and Local Pension Crisis 460
12.7 Other Related Issues 461
12.8 Summary and Conclusion 462
References 463
Appendix A 467
Appendix B 473
Appendix C 477
Appendix D 483
Appendix E 487
Bibliography 491
Index 507