My concern is to look at some of the major themes of budgetary policy in this country over the last decade or so and try to gaslight lessons which should have been learned from these experiences, and in so doing review the economic arguments relevant to budgetary policy; discuss my original views on the issue; explain my current position and how it was affected by what I learned in class; and finally discuss any new ideas/proposals. I should like to amplify this statement in several ways. Firstly, I am using the word 'budgetary as a short-hand for 'revenue and expenditure'.
Secondly, I am taking a highly subjective view: I am not bold enough to say what lessons have been learned but am only outing forward my view, with which others may disagree about what ought to be learned. Thirdly, with a subject as vast as this, I shall concentrate on two major themes: the adjustment of aggregate demand and supply and investment stimuli.
Since decentralized market capitalism honors the principle of consumer (producer) sovereignty, the question of what gives the government legitimacy in the context of a market economy has a natural answer: market failure. The government should provide those economic functions that the market cannot perform at all, or that the market economy performs sufficiently badly o warrant government intervention. People can reasonably disagree over the meaning of "sufficiently badly' and also whether the government can be expected to improve upon the market in any case.
Indeed these are the details over which liberals and conservatives do battle, and the details are often important. But liberals would agree with conservatives that the burden of proof is always on government intervention, that is, on market failure. No one would argue for government intervention into any economic activity that the market economy is handling well. Liberals and conservatives agree on rendering unto the market what is the market to do.
Public sector economics analyzes the design, efficiency and impact of public policy, in theory and practice, including the application and effects of taxation, government incentives/grants, and government expenditure on infrastructure, etc. Public sector economics is concerned with Justifying the existence of governments and explaining how they can affect economic activity. It explains how the 'invisible hand' of the market is tempered by the Visible hand' of government in the mixed economy of both private and public sectors adopted by the vast majority of nations such as Ghana.
Traditionally, public-sector economics has been concerned with the study of how governments can deal with the failure of markets to achieve efficient outcomes. Possible remedies which are considered include using public expenditure and taxation, taking some firms into state ownership and introducing regulation. These are all areas of microeconomic theory, policy and practice. But the very nature of the 'public' sphere has recently changed. In particular, we need to take account of lattice economy: how alternative economic theories are used to provide intellectual justification for ideological, moral and ethical beliefs (Bailey, 2010).
These have recently been made manifest in 'rolling back the frontiers of the state' through prevarication, contracting out to the private sector the provision of public services, the use of private finance initiatives and public-private partnerships for school education, hospitals and other public services and reforms of social security benefits. Public sector economics is certainly not confined within the covers of a dry and dusty extols. It is not heavily theoretical nor an abstract area of intellectual enquiry.
It is out there in the real world, influencing the small details that make up our everyday lives. Public sector economics, according to All and Adams (1996) is the study of government economic policy, which has both positive and normative dimensions. Examples of the positive dimension are such questions as the improvement in national security that results from developing and financing a new Jet fighter aircraft and the effects of taxes and transfer programs on people's incentives to work and to save.
The normative dimensions focus on the questions of the appropriate economic role of the government and how government policies should be designed to promote a society's economic objectives. 1. 1 AN OVERVIEW OF PUBLIC POLICY Public policy as government action is generally the principled guide to action taken by the administrative or executive branches of a country or state with regard to a class of issues in a manner consistent with law and institutional customs.
Generally, this concept refers not only to the result of policies, but more broadly to the decision- making and analysis of governmental decisions. As an academic discipline, public policy is studied by professors and students at public policy schools of major universities throughout the country and brings in elements of many social science fields and concepts, including economics, sociology, political economy, program evaluation, policy analysis, and public management, all as applied to problems of governmental administration, management, and operations.
At the same time, the study of public policy is distinct from political science or economics, in its focus on the application of theory to practice. Shaping public policy is a complex and alliterated process that involves the interplay of numerous individuals and interest groups competing and collaborating to influence policymakers to act in a particular way. These individuals and groups use a variety of tactics and tools to advance their aims, including advocating their positions publicly, attempting to educate supporters and opponents, and monopolizing allies on a particular issue In simple terms, budgetary policy refers to the programmatic use of a government's spending and revenue-generating activities to influence the economy and achieve pacific objectives. Budgetary policy refers to government attempts to run a budget in equilibrium or in surplus. The aim is to reduce the public debt. It is not the same as a fiscal policy, which deals with the fiscal stimulus to the economy, the repartition of taxes and the generosity of allowances.
A government's ability to run its own budget is perhaps the most basic test of the capabilities of the state. How well does the contemporary Ghanaian state pass this test? Evidence gathered from existing literature suggests that there are regularly large deviations between budget estimates and actual spending (CD/DOD, 2004). There is also evidence of large leakages in allocated funds between their release from the centre and arrival at the point of service delivery.
A pilot tracker study of expenditures by the Ministries of Education and Health found that an average of only 51% of the non-salary resources which the Ministry of Education thought had been allocated to any given primary school actually arrived there (World Bank, 2006). These evidences indicate that the existing expenditure budget processes have been shown to be so weak as to be essentially ritualistic, with limited bearing upon reality.
It also remains a closed system, creating a democratic deficit, which helps explain why such a weak system continues to be tolerated. The problem is compounded by the continuing deficiencies of the civil service and the political disincentives for governments to improve the situation. 2. 0 LITERATURE REVIEW Aggregate demand is a measure of the ability to spend or the level of expenditure necessary to command varying quantities of goods and services at different price levels (Ruby, 2003).
This concept is a measure of purchasing power such that when ricers increase with a given level of nominal income, fewer goods or services can be purchased. In understanding the behavior of aggregate demand we must take a close look at its individual components: AD: Nominal Income = Petty = (Ct+ It + Get + Next) In the aggregate economy the price level is determined by the balance (or imbalance) between the ability to produce goods and services and the ability to spend to acquire those same goods.
The ability to produce is summarized by the long run Aggregate Supply (SALSA) function based on the level of technology and availability of factor inputs (All and Adams, 1996). The ability to spend is summarized by Aggregate Demand (AD) that represents combinations of price and output levels for a given level of Nominal GAP. As prices rise, purchasing power falls, and thus the quantity of goods and services that can be acquired with a given nominal income declines. Aggregate Demand represents this inverse relationship between the price level and purchasing power.
When policymakers change the money supply or the level of taxes, they shift the aggregate-demand curve by influencing the spending decisions of firms or households. By contrast, when the government alters its own researches of goods and services, it shifts the aggregate-demand curve directly. Contemporary views on the application of the AS/AD model show that the model can't possibly provide a full explanation for business cycle phenomena (Garry, 1999). It is merely a template which frames up economic policy discussions and offers insight.
The application on stagflation, for example, hardly provides an exhaustive explanation of the complicated causes of the recessions in the sass and early sass, for example. It does suggest, however, that the petroleum embargo contributed to the unusual character of those recessions. So long as the model's limits are recognized and results interpreted as suggestive rather than definitive, the AS/AD model can be a useful tool of analysis. Government investment on the other hand is often subject to several delays.
In addition to the delay in recognizing a need to act, government investment, especially infrastructure projects, are subject to substantial implementation delays. Projects often require coordination among, state, and local governments and they have to go through a long process of planning, bidding, contracting, construction, and evaluation. These delays can make the economic unifies from government investment difficult to synchronize with the business cycle (Leper et al. , 2009).
The underlying principle of government investment captures three important channels that determine the impacts of government investment: the crowding-out effect, wealth effects (both negative and positive), and the effect from changing the marginal product of private inputs (Roomer and Finest, 2009). Coteries Paramus, higher government investment reallocates existing resources so there are fewer goods available for the private sector to consume and save. This crowding-out effect is induced by more competition for goods from higher government demand.
As goods today become more valuable, the real interest rate rises to clear the goods market. 3. 0 DISCUSSION From the brief literature review (above), it is Justifiable to assert that aggregate demand and supply and investment stimuli affect budgetary policies of governments, and can serve as the basis planned revenue and expenditure. 3. 1 ORIGINAL VIEWS ON BUDGETARY POLICY Budgetary policies, I had always thought centered on budget deficit. National opinion polls have identified government deficits as a key economic issue, second only to employment.
While many economists are relieved by what they perceive to be a long overdue political response to a critical economic problem, others regard the fuss as much ado about nothing. It is indeed remarkable that economists can disagree so severely over an issue which commands such a uniform reaction from laymen of widely different ideologies and political affiliations. 3. 2 CURRENT POSITION ON BUDGETARY POLICY The small size of the Ghanaian economy limits resource manipulation potential and Government's fiscal space to identify revenue opportunities from the citizenry, in edition to low compliance with tax and regulatory requirements.
The financial system is weak and characterized by a small financial market that is underdeveloped with inadequate intermediation, and also marked by a banking system that depends largely on wide spreads between savings and lending rates. As well, Shania's capital market is small, illiquid and underdeveloped with limited instruments for resource manipulation. These challenges constrain domestic resource manipulation at all levels and expose the country to reliance on external financial support as well as foreign erect investment as the principal sources of funding for both public and private sectors.
These challenges impede the pace of policy implementation which oftentimes becomes hostage to inadequate domestic funding and/or disbursements of external funding agencies, both bilateral and multilateral. A good budgetary policy should therefore focus on increased government investment in the economy rather than focusing solely on fiscal deficits. 3. 3 IMPACT OF STUDIES ON CURRENT VIEWS OF One of the major themes of my studies in Public Sector Economics is Public-Private Partnership.
This topic has helped to crystallize my understanding of why Prevarication is supposed to be undertaken to redeploy assets from the public to the private sector, where the assets are expected to be used more efficiently. I learned in this course that there are two elements in the fiscal impact of prevarication: (a) the net change in the income flow to the Government arising from the size and timing of the net income stream to the Government from the privatized firm, relative to the income flow if the firm had remained public; and (b) the change in the net wealth position of the Government.
In forming my current opinion on the issue of budgetary policy it became even clearer to me that the challenges of lack of lack of liquid and developed instruments for resource manipulation in Ghana make a good case for governments to consider adopting more public-private partnerships to enable them raise the resources needed for investment in the economy. This will go a long way to help in adjusting aggregate demand and supply in the economy and ultimately influence budgetary policy. 4. 0 The transformation of the economy will entail considerable amounts of capital.
In order to immobile the needed capital, Government will adopt a three-pronged approach to identify, source, and apply the requisite funding to the backbone industrial and infrastructure investments. These are: (I) vigorous promotion of Peps; (it) targeted bilateral partnerships in state-to-state arrangements that will enable Ghana to gain access to large state-sponsored FDA; and (iii) acceleration of the capacity expansion of the domestic financial markets and directed support and incentives for the capital market and institutions.