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Budget Functions

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Practice Advice on Public Financial Management

Budget Functions (OECD)

Summary Advice: The OECD advises that there are four fundamental functions of a government's budget (authorization, allocation, macroeconomic assessment, administrative) and three preconditions for fulfillment of these functions (principles of universality, unity and specificity).   

Main Points: The word “budget” has different meanings in different countries, yet, in most cases it relates to the law or collection of laws authorizing expenditures, and/or incurrence of obligations to make expenditures, to be financed from taxes and other levies. A budget, in its most simplified definition, has the following fundamental functions and preconditions for fulfilling those functions.

Functions of a budget

  • Authorization: allows the tracing of all money spent from public treasury and ensures that all spending and transfers are subject to legislative authorization.
  • Allocation and Distribution: allows the executive and legislative budgetary authorities to compare and trade off changes in expenditures and revenues.
  • Macroeconomic assessment: allows the budgetary authorities to decide on the impact of the budget on the economy and the composition of expenditure, revenues and deficits for the budgeted period.
  • Administrative function: allows the budgetary authorities to control and contain the costs of public service delivery.

Preconditions for the fulfillment of all budget functions

  • Universality Principle: all budgeted expenditures must be financed by taxes or levies and all revenues collected must be come in the form of taxes or levies.
  • Unity Principle: all expenditures in the budget must be made during a specified period of time and all revenues in the budget must be collected during that period.
  • Specificity Principle: expenditures and revenues must be identified separately in the budget and at a level of detail required by the budgetary authorities

Although budgets in most OECD countries are drafted in accordance with abovementioned principles, there remain some forms of expenditures which are hard to reconcile. In particular, Off-Budget Expenditures (expenditures which are financed by taxes or levies that are not in the budget) violate the universality principle and Back-Door Expenditures (expenditures financed by public taxes or levies that are in the budget but are materially authorized by substantive laws outside the budget process) violate the unity principle.

Source: OECD (2004). "Best Practice Guidelines  - Off Budget and Tax Expenditures" 25th Annual Meeting of Senior Budget Officials, at: (accessed 2 January, 2013).

Page Created By: Khilola B. Zakhidova on 2 January 2013. Updated by Ian Clark 4 January 2013. The content presented on this page is drawn directly from the source(s) cited above, and consists of direct quotations or close paraphrases. This material does not necessarily reflect the official view of the publishing organization.



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