Comparative Public Sector Budgeting & Financial Management

Spring 2011

Instructor Prof. Bryane Michael

bm2508@columbia.edu Course Number: SIPA U6020 Meeting Place and Time: Time: Mon 9:00-10:50AM (407 IAB) Office Hours: To be Announced

Pre-reqs: None

Course Overview Public sector financial management deals with some of the most interesting issues in public administration. How should our government raise money to pay for social goods? How much money should our department or ministry get in order to accomplish the objectives set for it by politicians and senior civil servants? How should you – as a current or future public sector manager – budget your scare resources and use them in order to provide electricity, save the banking sector, or analyse environmental policy? In this course, you will learn the basics of public sector financial management. In this course, using a variety of case studies as examples, you will learn the basics of public sector financial management. What are the learning objectives for this course? Using policy cases as a background, this course aims to teach class participants to: • Define and frame policy hypotheses (or questions) in the context of public sector financial management, • Apply various models from management, politics, economics, and legal theory • Use empirical data in order to arrive at conclusions • Convincingly critique their own analysis and the analysis of others This course is a skills-based course – meaning that the readings have been assigned as background for our class discussions. We will have working class sessions rather than the usual lecture style classes. Please come prepared with your case analyses for the week.

How Will I Be Graded? Your grade in the course shall be based on four assessments – 2 small group oral assessments, 1 peer-reviewed policy brief and a final policy analysis. Assessment Description Timing WeightIn-class questions

I call on students (or groups of students) at random to present a case or analyse a policy question.

All term 30%

Policy Brief You will prepare a budget analysis from the list of questions I have assigned.

11th March

20%

Final Policy Brief

Please write a 15-20 page policy analysis from the questions I have assigned

29th April 50%

Academic Integrity Statement The School of International & Public Affairs does not tolerate cheating and/or plagiarism in any form. Those students who violate the Code of Academic & Professional Conduct will be subject to the Dean’s Disciplinary Procedures. See Code online. Please familiarize yourself with the proper methods of citation and attribution. The School provides some useful resources online; we strongly encourage you to familiarize yourself with these various styles before conducting your research: available online. Violations of the Code of Academic & Professional Conduct should be reported to the Associate Dean for Student Affairs.

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Course Overview

24 January 2011 Introduction to Public Financial Management 31 January The Budget Process 7 February Budget Analysis 14 February An Introduction to Comparative Public Sector Financial

Management 21 February Capital Budgeting 28 February Using Empirical Methods in Academic and Practical PFM

Decisions 7 March Debt, Taxes and Non-Tax Revenues 14 March Mid-term Review 21 March A Revision of Revenue Material and a Look at Inter-governmental

Revenues 28 March Cash Management and Portfolio Investment 4 April Public Sector Audit 11 April Performance-Based Budgeting and Communicating Results 18 April Evaluating Public Sector Financial Statements 25 April Final Exam

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Introduction to Public Financial Management 24 January 2011 The outline for the lecture will be roughly as follows: a) review the structure of the course and deal with administrative issues b) conduct an example budget analysis based on a previous year’s budget c) give an example of a political proposal and discuss how to calculate the costs and benefits as well as the social impacts d) discuss briefly other issues for consideration while costing a policy proposal (with the assistance of the class) e) review key models from game theory which can help us predict the Nash equilibrium budget (and prepare “back-up strategies” in case players are locally irrational) f) review how to tackle the case studies for this course. For the practical skills for this lecture, you will learn how to: a) skim a budget for substantive issues for further analysis b) turn social values into fundable activities (cost-benefit analysis) c) analyse the effects of budgetary activities on macroeconomic variables (particularly in the IS-LM model), d) calculate the optimal tax rate and the “package” of public goods, e) find the best level of spending on programme over time (dynamic optimisation) f) predict the level of a budget based on the interests of the parties engaging in politics over the budgetary compromise Main readings (about 40 pages of reading): Mikesell, John L. Mikesell, Fiscal Administration: Analysis and Applications for the Public Sector, Chapter 1. US 2010 budget (you may also use the previous year’s financial statements to help motivate your critique). Budget: http://www.gpoaccess.gov/usbudget/fy10/pdf/fy10-newera.pdf Financial Statements: http://www.fms.treas.gov/fr/09frusg/09frusg.pdf Questions we will cover in class 1. The elderly will finally have affordable health care. What will this do to the dollar (and inflation)? (We will need to make some assumptions about what is happening on the revenue side). 2. How much is a tree worth?

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3. Marx said the government is the bourgeoisie’s instrument of oppression against the proletariat. According to the budget and financial statements I gave, was he right? (we may even calculate the exact “marginal value” of such oppression or non-oppression in theory). I will call on individuals (groups) at random and ask for their insights into the budget and/or these questions. Please try to go through as much of the budget and financial statements as you can.

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The Budget Process 31 January 2011 The outline for the lecture will be roughly as follows: a) Members of the class will be selected at random and present their budget analysis b) We will discuss how to apply the models we learned in the previous session c) Another group (called at random) will open the Turkey case d) I will ask class participants to explain the budget process (and how to apply the models from Drazen). e) we will do several exercises of budget formulation together – I will present you with a case and you will use the course materials to develop mini-budgets. For the practical skills for this lecture, you will learn how to: a) methods of aggregating policy preferences into a budget document, b) how to identify key benchmarks and actors in the budget process c) how to guess the political equilibrium leading to a budgetary allocation d) critique a budget proposal Readings (about 55 pages of reading) Mikesell, John L. Mikesell, Fiscal Administration: Analysis and Applications for the Public Sector, Chapter 2-5. Allan Drazen, How Does Politics Affect Economic Outcomes? Insights from “New” Political Economy. Available at: http://www.apsanet.org/~polecon/Drazen.pdf Turkey - Public expenditure and institutional review - reforming budgetary institutions for effective government available online. US Budget: Budget: http://www.gpoaccess.gov/usbudget/fy10/pdf/fy10-newera.pdf Questions we will cover in class. 1. Is it better to bail out the bankers all at once? or in small chunks? 2. Is Turkey’s public expenditure “good”? Assignment Please prepare a brief analysis of a topic from the US Budget (as you saw me do during the first lecture).

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Budget Analysis 7 February 2011 The outline for the lecture will be roughly as follows: a) I will call on a group of students to open the US or international case b) we will discuss the case, with my critiques c) we will discuss the other case d) we will look at ways of analysing budgets using Excel (or more sophisticated software if I think the entire class as a good foundation in stats) e) we will discuss how to write up the statistical analysis into a policy brief Practical skills for working on during the lecture: a) finding data from a budget document b) using Excel (or more advanced software) to calculate statistics relevant for budget analysis c) how to draft an empirically-derived policy brief d) how to critique such policy analyses Readings (about 65 pages of reading) Cash Flow and Budgetary Variance Analysis Tactical Financial Analysis. Available online. For students interested in the USA Budget of the United States Government, Fiscal Year 2011 http://www.whitehouse.gov/sites/default/files/omb/budget/fy2011/assets/budget.pdf An Analysis of the President's Budgetary Proposals for Fiscal Year 2011 http://www.cbo.gov/ftpdocs/112xx/doc11280/03-24-apb.pdf OMB Circular A-11 on budget preparation and execution http://www.whitehouse.gov/sites/default/files/omb/assets/a11_current_year/a_11_2010.pdf For students interested in the international exercises Georgia - Public Expenditure and Financial Accountability (PEFA) : joint World Bank-European commission public financial management assessment - programmatic public finance policy review. Available online. A Citizen’s Guide to the Georgian Budget http://www.mof.ge/common/get_doc.aspx?doc_id=7372 and finally (and most importantly) Budget Act of Georgia

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http://www.mof.ge/show_law.aspx?id=419 (your eyes will glaze over with this. Try to go article by article, using the diagramming technique I showed you in class, so you get a feel for doing legal analysis). Assignment I will call on two groups (or individuals which may or may not belong to a group). You will open the case (either US or Georgia), presenting the issues, showing how they used finance to address the issue and provide critiques.

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An Introduction to Comparative Public Sector Financial Management 14 February 2011 The outline for the lecture will be roughly as follows: a) I will call on a group of students to open the US or international case b) we will discuss the case, with my critiques c) I will ask class participants for their analysis of the similarities and differences between the US system and the other systems we read about d) we will discuss the other case e) I will lead a critique of the analysis, providing recommendations on how to buttress arguments, anticipate counter-arguments and find more effective counter-arguments. Practical skills for working on during the lecture: a) how to identify differences in social values across countries and how they translate into differing budgetary priorities, b) how to apply the macroeconomic, microeconomic and other models we have learned about on a super-national system, c) how to argue and defend a policy analysis d) how to begin synethesing the readings into a coherent whole Readings (about 45 pages of reading) European Union Public Finance. (2002). http://vanha.soc.utu.fi/tdk/kv-asiat/Venetoklis03/Venetoklis14.pdf World Bank, Budgeting and Budgetary Institutions, available online. Performance-Based Budgeting and Medium-Term Expenditure ... http://siteresources.worldbank.org/INTECA/Resources/WBperformanceBudgetingTEF.pdf Reforming regional - local finance in Russia available online. you may find this reading useful for a later assignment Assignment Prepare a policy analysis for government finance in the EU, trying to use the skills you have learned from Excel for this exercise http://epp.eurostat.ec.europa.eu/portal/page/portal/government_finance_statistics/data/database Alternatively, you can do the exercise for the US states: http://www.census.gov/govs/state/

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and in case you need to get your bearings about the relative size of US states. Additionally, please be ready to discuss the similarities and differences between the US system and the other systems in this week’s readings.

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Capital Budgeting 21 February 2011 The outline for the lecture will be roughly as follows: a) I will ask a group to open the Scotland case b) we will discuss techniques of capital budgeting (choosing discount rates, assigning probabilities to nasty events and so forth), c) work on another policy analysis together in preparation for the mid-term d) discuss the first interim assessment Practical skills for working on during the lecture will focus on how to: a) assess the costs and benefits of a capital investment and expenditure b) tie capital budgeting with the broader view of the budget and expenditure c) draw on various models and methods of analysis in a whole (in preparation for the mid-term assessment). Reading (about 35 pages of reading) Mikesell, John L. Mikesell, Fiscal Administration: Analysis and Applications for the Public Sector, Chapter 6. IMF, Public Financial Management Technical Guidance Note http://blog-pfm.imf.org/files/capital-expenditures-and-the-budget.pdf Hood, Ron ; Husband, David ; Fei Yu, Recurrent expenditure requirements of capital projects - estimation for budget purposes. available online. Assignment: Read the capital expenditure part of Scotland’s budget http://www.scotland.gov.uk/Publications/2009/06/18101733/0 Now, look at the critique in Chapter 6 http://www.scotland.gov.uk/Resource/Doc/919/0102335.pdf Be prepared to respond to the following statement: “Scotland is not investing in the future.” Do you agree or disagree (based on the documents?)

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Using Empirical Methods in Academic and Practical PFM Decisions 28 February 2011 The outline for the lecture will be roughly as follows: a) I will ask a group to present one of the papers, asking them to present as much of the technical parts as they are able b) we will discuss the parts which you felt uncomfortable about c) we will discuss how to design a statistical analysis to answer particular policy managerial questions in PFM d) we will design several statistical analyses together (the steps to follow, variables to measure and so forth… we will not do any actual statistical analysis for this session). Practical skills we will work on in this lecture: a) reading, interpreting and critiquing a regression (and other statistical) analysis b) translating policy questions into statistical questions c) translating statistical studies into recommendations with policy relevance d) how to design a statistical study in order to obtain answers to managerial questions in PFM e) how to draft a policy brief summarising the findings of highly quantitative statistical studies. Readings (about 45 pages of reading) David Alan Aschauer, Is public expenditure productive? Journal of Monetary Economics, Volume 23, Issue 2, March 1989, Pages 177-200. available online. Emranul Haque and Richard Kneller, Public Investment and Growth: The Role of Corruption. available online. Richard Vedder and Lowell E. Gallaway, BUDGET SURPLUSES, DEFICITS AND GOVERNMENT SPENDING, available online. Assignment Please come to class ready to answer the following questions which I may give to groups of students. 1. The World Bank has done a reform of Uzbekistan’s Public Financial Management System. Their evaluation arm calls you in to do an independent evaluation. They specifically want a statistical test of the programme’s effectiveness. What do you propose? (No need to actually do the tests, just describe how they would be designed). The project is available online.

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2. Monitoring and Evaluation (M&E) is what the World Bank calls public internal audit (but its too scary to call it “audit”). They (the World Bank) have been at it for a while. How would you statistically evaluate their results? How would you evaluate the results of the M&E systems in the countries they work with? Evaluation Capacity Development, available online.

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Debt, Taxes and Non-Tax Revenues 7 March 2011 The outline for the lecture will be roughly as follows: a) I will ask a group to present their analysis of the UK budget, and we will conduct our usual peer review b) I will ask class participants to present the salient issues from the readings…. using that opportunity to discuss the government budget constraint -- paying particular attention to the effects that methods, incidence and timing of taxation as well as tax rates have on revenue collection c) I will ask another group to present the other case – where we will incorporate what we have learned during the class into the case analysis. d) we may do a sample mid-term case in order to prepare for the mid-term assessment. Practical skills we will work on in this lecture: a) conducting simple analyses of changes in debt, revenue and expenditure on budget assumptions, b) assessing changes in debt and tax finance leading to changes in potential expenditure c) assess how changes in expenditure lead to changes in revenue and debt finance d) use empirical and other studies to predict effects of changes in budget variables e) use models of political economy to predict changes in debt, revenue and expenditure f) combine types of analysis in preparation for the mid-term Readings (about 60 pages of reading) Mikesell, John L. Mikesell, Fiscal Administration: Analysis and Applications for the Public Sector. Chapter 7 and Chapters 8-11 if you have time. . David N. Hyman, Public Finance: A Contemporary Application of Theory to Policy. Chapter 13, and Part IV. Treasury Was Able to Fund Economic Stabilization and Recovery Expenditures in a Short Period of Time, but Debt Management Challenges Remain, GAO-10-498 May 18, 2010 http://www.gao.gov/new.items/d10498.pdfPay attention to three things: 1, what they say about US debt, b) the methodology they use (this tells us something about our week related to empirical methods), and 3) the way auditors argue (we will discuss this later). Martin J. Luby, Agency Problems in Public Management: Evidence from Debt Management Function. http://www.pmranet.org/~pmranet/conferences/OSU2009/papers/Luby,%20Martin%20J.%20%20Agency%20Problems%20in%20Public%20Management%20-%20Evidence%20from%20Debt%20Management%20Function.pdf

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Are there agency problems in the debt management function? Elmendorf, Douglas and Gregory Mankiw. Government debt, available online. Axel Dreher, Jan-Egbert Sturm and Heinrich W. Ursprung. The impact of globalization on the composition of government expenditures: Evidence from panel data, available online. Aizenman, Joshua and Yothin Jinjarak, The collection efficiency of the value added tax: theory and international evidence. http://www.escholarship.org/uc/item/42d103zh#page-1 Assignment(s) 1. Please have a look at the recent UK budget and the attached National Audit Office review of the budget’s assumptions. The NAO missed something big. What is it (of course there are many possible answers)? UK 2010 Budget: http://www.direct.gov.uk/prod_consum_dg/groups/dg_digitalassets/@dg/@en/documents/digitalasset/dg_188581.pdfNAO Audit Report: http://www.nao.org.uk/idoc.ashx?docId=b2384051-2d54-42dc-888b-cd29c30c522f&version=-1 2. Whats the difference between the US and EU tax gaps? (I don’t mean money, use the models and material you have already learned to say something interesting). US tax gap: http://www.irs.gov/pub/irs-news/tax_gap_report_final_080207_linked.pdf Sweden tax gap: available online. UK tax gap: http://www.hmrc.gov.uk/stats/measuring-tax-gaps.pdf You should also be preparing for the mid-term assessment. In the next lecture, I will give several examples of questions which you should do impromptu in class.

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Mid-term Review 14 March 2011 The outline for the lecture will be roughly as follows: a) I will ask a group to present their analysis of the US budget – paying particular attention to topics they are able to discuss in light of the new material we covered b) we will go through the analysis again, in a succinct way in which you might present it during a mid-term or final c) I will ask a group to open the EU case study, asking them to take a couple of minutes to prepare the presentation as they might in a mid-term or final exam d) we will discuss other possible methods of analysis e) I will pose one or two questions to class members, asking them to present an extemporaneous analysis – I will call on other groups when I would like to solicit other material. Practical skills we will work on in this lecture: a) use the range of models and information you have learned to analyse real-world policy questions b) formulate empirical methods used to answer policy questions which may arise during the case analysis c) critique our own and others’ analysis. Readings (about 20 pages of reading) Assessing and reforming public financial management : a new approach, available online. You know enough now about public sector budgeting and financial management to critique this work (how to they prove their assertions? what underlying theory do they draw on, etc. etc.) Assignment(s) 1. We saw the 2010 US budget in the first lecture. At that time, you probably felt completely over your head. Try it again now… don’t forget to go through the syllabus (week-by-week) trying to learn the new tools you’ve learned. http://www.gpoaccess.gov/usbudget/fy10/pdf/fy10-newera.pdf 2. Please prepare a policy brief for presentation in class – highlighting the important aspects of this budget: http://ec.europa.eu/budget/documents/2010_en.htm?go=t1_0

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Mid-Term Assessment For this assessment, I will ask each student to draft a policy brief on a question which I will give to them after lecture (probably by email). Please write a policy brief, using the models you have used to answer the question. I will set a question at random, like the ones we have been working on all term. You should email the exam to me by the deadline. To prepare for the assessment: The policy brief (and critique) will need to read like a professional brief. You will not have time to search your notes and attempt to piece together the material during the allocated time. As such, you should prepare as if the paper were written in class. Types of questions which may appear during our assessment meeting The questions shall be deliberately vague, in order to allow you to draw on various models and countries we have analysed so far.

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A Revision of Revenue Material and a Look at Inter-governmental Revenues 21 March The outline for the lecture will be roughly as follows: a) I will ask a group to present their model of inter-governmental transfers and various levels of fiscal relations b) we will discuss the “optimal” allocation of competencies and authorities, given the economic and political models we have learned, c) we will discuss – using several examples – the positive and normative aspects of inter-governmental transfers d) I will ask another group to open the Russia case e) we will discuss the political economy aspects of inter-governmental transfers f) discuss the law article, using the tools from law to inform economics (and visa-versa). Practical skills we will work on in this lecture: a) conduct political economy analysis of budgetary allocations with more players b) conduct economic analysis at multiple levels (optimal taxation at the local level, given taxation at the federal or national level), c) consider the effects of uncertainty in making budgets (how to include strategic effects and incomplete information into our conventional analysis) d) how to draft a policy brief for a sub-national administration e) incorporate legal and economic analysis Reading (about 45 pages of reading) Mikesell, John L. Mikesell, Fiscal Administration: Analysis and Applications for the Public Sector. Chapter 13 David N. Hyman, Public Finance: A Contemporary Application of Theory to Policy. Chapter 18… skim. OH Fjeldstad, Intergovernmental fiscal relations in developing countries http://www.cmi.no/publications/2001/wp/wp2001-11.pdf Super, David. (2005). Rethinking Fiscal Federalism, Harvard Law Review, http://www.harvardlawreview.org/media/pdf/super.pdf Broadway, Robin, Sandra Roberts and Anwar Shah. (1994). Fiscal Federalism and Dimensions of Tax Reform. Available online. David G. Tuerck, Paul Bachman and Sylvia Jacob. (2007). Fiscal Federalism: The National Fair Tax and the States. available online.

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Assignment(s): Two assignments for this week. 1. Prepare a diagram outlining the division of competencies between various levels of government (and authorities for raising revenue and engaging in expenditure). 2. Please look at the Russian system – what does Russia teach us about how to design (or not) a system of inter-regional transfers? De Silva, Migara, Galina Kurlyandskaya, Elena Andreeva, and Natasha Golovanova, 2009, Intergovernmental Reforms in the Russian Federation: One Step Forward, Two Steps Back? available online. E Dabla-Norris - Comparative Economic Studies, 2006, The challenge of fiscal decentralisation in transition countries http://www.uquebec.ca/observgo/fichiers/43799_glr-2.pdf Fiscal decentralization in rentier regions: Evidence from Russia L Freinkman, A Plekhanov - World Development, 2009 – Elsevier http://linkinghub.elsevier.com/retrieve/pii/S0305750X08002350 Jorge Martinez-Vazquez, Asymmetric Federalism in Russia: Cure or Poison? http://econpapers.repec.org/scripts/redir.plex?u=http%3A%2F%2Faysps.gsu.edu%2Fisp%2Ffiles%2Fispwp0304.pdf;h=repec:ays:ispwps:paper0304A bit dated, but Russia doesn’t change all that quickly… Jarocińska, Elena, Intergovernmental grants in Russia, Economics of Transition, Volume 18, Number 2, April 2010 , pp. 405-427(23). http://www.ingentaconnect.com/content/bpl/ecot/2010/00000018/00000002/art00006

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Cash Management and Portfolio Investment 28 March 2011 The outline for the lecture will be roughly as follows: a) I will ask a group to present the Norway case b) we will discuss the “optimal” portfolio in light of the data various groups collected about the performance of various assets, c) we will discuss CAPM and its application in a public sector setting (particularly when the investor can create its own assets – as you will guess, it “buys” these assets through opportunity costs). d) discuss how the the profit maximisation strategy interacts with revenue and expenditure strategies e) discuss how civil servants’ own career interests affect the optimal portfolio (namely, the principal-agent problem in the public sector). Practical skills we will work on in this lecture: a) find the optimal portfolio for a government agency, b) calculate (in rough form) the effects cash management strategies have on expenditure c) turn model predictions into budget line items. Reading (about 40 pages of reading) Mikesell, John L. Mikesell, Fiscal Administration: Analysis and Applications for the Public Sector. Chapters 14 and Chapter 15. William, Michael. Government Cash Management: Good – and Bad – Practice. Available online. Iglesias, Augusto and Robert J. Palacios. (2000). Managing Public Pension Reserves Part I: Evidence from the International Experience. available online. NAO (2009). Government cash management. Available online. John Blackburn, John et al. (2008). Sovereign Wealth Funds: Do Sovereign Wealth Funds Best Serve the Interests of their Respective Citizens? Available online. Assignment Please look at the Norwegian sovereign wealth fund (see their annual report online). What is their optimal portfolio? Should they really be “playing with other people’s money”? (Hint: compare the performance of some of these securities with others… for example, would an international basket have performed better? with less risk? Can we even talk about these principles when dealing with other people’s money?)

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Public Sector Audit 4 April 2011 The outline for the lecture will be roughly as follows: a) I will ask one group to open one of the assigned cases b) we will discuss the audit methodology, and I will provide clarifications as we go along c) I will present an internal audit that I have done, showing the main issues d) I will ask you to design an audit based on a random case which I will give you in class e) we will discuss how to manage the internal audit function and a specific engagement Practical skills we will work on in this lecture: a) design (in rough form) an internal audit in the public sector b) select an audit framework for managing risks, and selecting ways of calculating risks c) generating cost-efficient, incentive-compatible recommendations with your auditors, d) how to negotiate a particular engagement Reading (about 45 pages of reading) How to Conduct an Internal Audit http://www.howtodothings.com/business/how-to-conduct-an-internal-audit Internal Audit Manual. http://www.mscd.edu/facstaff/admin/auditor/documents/INTERNALAUDITMANUAL_new.pdfor A British version of the same thing: http://www.hm-treasury.gov.uk/d/internalaudit_300409.pdf Use of the balanced scorecard in health care WN Zelman, GH Pink, CB Matthias - Journal of Health Care Finance, 2003, available online. Two questions for this one: a) is it audit and b) what is the quality of the article itself (theory and data?) Thailand: Fiscal Transparency ROSC. http://www.imf.org/external/pubs/ft/scr/2009/cr09250.pdfIs it audit or isn’t it? State and Local Governments: Fiscal Pressures Could Have Implications for Future Delivery of Intergovernmental Programs http://www.gao.gov/new.items/d10899.pdf Is it an audit or not?

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Assignment Choose 1 of the following possible audits. Try it yourself first. We will do one in class. Then try to do others as you revise for the final exam. 1. You pick up your mobile phone, and who should be on the phone except Deputy Secretary of the American Employment and Training Administration Ms. Jane Oates. She would like a performance audit done of the Workforce Investment Act -- Adults and Dislocated Workers Program. How would you design it? http://www.doleta.gov/programs/general_info.cfm 2. How would you design a performance audit of the following World Bank project? http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2005/12/21/000090341_20051221134956/Rendered/PDF/33993.pdf 3. The Greek government wants an audit of their public-private partnership programme. The guy you talked to doesn’t really know what its about or what he wants. What can you propose to him? http://www.sdit.mnec.gr/en

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Performance-Based Budgeting and Communicating Results 11 April 2011 The outline for the lecture will be roughly as follows: a) I will ask one group to present their NYTs article (and corresponding analysis done to prepare the article) b) we will discuss the differences between the budget and performance c) we will assess the performance of the budget d) practice our policy analysis with questions arising from our global analysis. Practical skills we will work on in this lecture: a) comparing budget estimates with realisations, b) assessing the extent to which the budget achieves the social objectives it aims to achieve c) analyse political and organisational reasons for under-performance (using game theory), d) how to turn complex policy analysis into vivid prose for common consumption Reading (about 60 pages of reading) A Primer on Performance Based Budgeting http://siteresources.worldbank.org/PSGLP/Resources/ShahandShenpaper.pdf Performance Budgeting in OECD Countries https://www.bmf.gv.at/Budget/Haushaltsrechtsreform/DiverseUnterlagenSt_10396/OECD_Studie_Performance_Budgeting.pdf IMF Article IV Consultation with the USA. http://www.imf.org/external/pubs/ft/scr/2010/cr10249.pdf Performance Report of US Treasury http://www.ustreas.gov/offices/management/dcfo/accountability-reports/09Treas_APR_full%20book_05.pdf The Financial Statement of the US Government http://www.fms.treas.gov/fr/09frusg/09frusg.pdf Consolidated Financial Reporting in the Public Sector: Cross ... http://www.consolidation.unisi.it/papers/1-2.pdf Assignment What’s Sustainable About This Budget? http://www.nytimes.com/2010/02/14/business/economy/14view.html?_r=1

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In light of your readings, and any independent analysis you may decide to conduct, do you agree or disagree with Prof. Mankiw? You may wish to draft a response article for the NYT which I may ask you to read in class. (We may also discuss the analysis you conducted in order to boil the results down into a brief article). Remember your audience – so you will need to translate the complex analysis into amusing prose.

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Evaluating Public Sector Financial Statements 18 April 2011 The outline for the lecture will be roughly as follows: a) I will ask one group to present their case, we will discuss -- with possibly very different analyses of the same country coming from another group b) I will take our longer discussion and debate and try to tie it into a model exam answer c) we will work on the second case study d) We may do together one or two questions like the ones likely to appear on the final. Practical skills we will work on in this lecture: a) how to take very broad assignments and translate them into usable policy analysis b) how to conduct and present cogently an appraisal of the state of a public sector’s financial management (and identify salient issues), c) form a holistic view of a year’s financial management, using the range of models we have learned, d) critique an analysis, authoritatively yet politely. Assignment(s) - (about 15 pages of reading) Please select one of the following public sector accounting statements (or from another country if you like). Please prepare an analysis, to the best of your ability (and within a reasonable time limit). México (for Spanish speakers) http://www.apartados.hacienda.gob.mx/contabilidad/documentos/informe_cuenta/2009/index.html America (for English speakers) http://www.fms.treas.gov/fr/09frusg/09frusg.pdf French Republic (for French speakers) http://www.performance-publique.gouv.fr/fileadmin/medias/documents/ressources/Comptes/2009/Compte_General.pdf Hong Kong (again for English speakers) http://www.try.gov.hk/internet/eharch_annu_statend09.html#p

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Final Exam 25 April 2011

Final Assessment For the assessment, I will ask each student to draft a policy brief on a question which I will give to them beforehand (to everyone at the same time -- probably by email). Please write a policy brief, using the models you have used to answer the question. I will set a question at random, like the ones we have been working on all term. You will email the exam to me by the deadline and arrange a time for a meeting with me. During the meeting, we will discuss: a) your performance in the course b) your policy brief (good points and areas for improvement), c) tackle areas where I am not sure if you have understood the material but written work did not allow me to assess your knowledge sufficiently) I will tell you your final grade at that time. At that time, I would also appreciate it if you tell me my grade – my performance in the course (or of course you can email me later from an anonymous Yahoo account if you like).

Examples of questions I might ask: 1. What is better, Georgia or Turkey? 2. What does it profit a man (woman) to gain the world, and lose his (her soul)? (again, you are looking at the trade-off between budgets reflecting social values as opposed to maximizing social returns). 3. The State of California has called in the Terminator to fix the budget deficit. What is wrong with the budget? available online. (As you see, the theories and models will guide you across a dry, boring document. Don’t forget about the implicit value trade-offs inherent in the budget). You might find it useful to go week-by-week across and think about what this budget does for capital expenditure, debt, interest groups in California and so forth. See: http://www.lao.ca.gov/laoapp/main.aspx?type=2&PubTypeID=4 4. What are the major differences between the 2010 and 2011 US budget? Which is better? (by now, you can make all kinds of positive and normative value judgments. You will of course, need to write in as close as style as possible to the readings I’ve been assigning). Good luck!

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