Date Shifting / Fiscal Transparency / Fiscal Illusion (Congressional Glossary)

From the Congressional Glossary – Including Legislative and Budget Terms

Date Shifting / Fiscal Transparency / Fiscal Illusion

"Kilroy Was Here" on the WW2 Memorial, by dbking

"Kilroy Was Here" on the WW2 Memorial, by dbking

One of the budgetary maneuvers used by Congress. Congress can shift scheduled payments for contracts, or even for federal employee salaries, by a few days in order to move expenditures from one fiscal year to another. For example, a payment scheduled for September 30, 2015, delayed a day to October 1, 2015, would shift the cost from the books of fiscal year 2015 to fiscal year 2016. (Source: CQ Today)

One of the best things about being a government is that nobody audits your accounts. Politicians have huge leeway in drawing up and presenting their budgets. Hans Hoogervorst, the plain-speaking chairman of the International Accounting Standards Board (IASB), has referred to public-sector accounting as being in “a stage of primitive anarchy”. A new IMF paper [“Accounting Devices and Fiscal Illusions”, by Timothy Irwin] offers a helpful taxonomy of government-accounting gimmicks.

The simplest wheezes push spending into the future. Classic forms of deferred spending that do not show up on balance-sheets until later include pension promises and public-private partnerships, where governments pay companies for infrastructure after construction is done. America met a 1987 deficit target by simply delaying military pay and Medicare payments.

Book-cooking guide: The public sector has too much freedom to dress up the accounts,” The Economist, April 7, 2012.

See alsoAccounting Devices and Fiscal Illusions“, by Timothy Irwin, IMF Staff Discussion Note, March 2012.

 


Bipartisan Fiscal Commission

 

Many believe and argue that fiscal, or budgetary, transparency has large, positive effects on fiscal performance. However, the evidence linking transparency and fiscal policy outcomes is less compelling. To analyze the effects of fiscal transparency on public debt accumulation, we present a career-concerns model with political parties. This allows us to integrate as implications of a single model three hitherto-separate results in the literature on deficit and debt accumulation: that transparency decreases debt accumulation (at least by reducing an electoral cycle in deficits), that right-wing governments (at least for strategic reasons) tend to have higher deficits than left-wing governments, and that increasing political polarization increases debt accumulation. To test the predictions of the model, we construct a replicable index of fiscal transparency on 19-country OECD data. Simultaneous estimates of debt and transparency strongly confirm that a higher degree of fiscal transparency is associated with lower public debt and deficits, independent of controls for explanatory variables from other approaches.

Fiscal Transparency, Political Parties, And Debt In OECD Countries,” by James E. Alt and David Dreyer Lassen, November 5, 2003 (47-page PDFPDF)

Fiscal illusion refers to “the notion that systematic misperception of key fiscal parameters may significantly distort fiscal choices by the electorate” (Oates 1988, 65). The premise is that the tax system’s design can lead to underestimation of the costs of public expenditure, with the public not being fully informed of taxation’s total costs. Fiscal illusion is an example of a collective-action problem in public policy, where the benefits of individual voters’ gathering and processing information are shared by many, but the costs are placed solely on the individual (Caplan 2001; Congleton 2001).

Fiscal Illusion and Fiscal Obfuscation,” by Tino Sanandaji and Bjorn Wallace, The Independent Review, v. 16, n. 2, Fall 2011.

Also see Baseline / Baseline Budgeting / Scorekeeping; Budget Deficit / Budget Surplus; “Emergency” Spending; Fiscal Year; Statutory Limit on the Public Debt / Budget Control Act of 2011; Chapter Seven, Legislating in Congress: Federal Budget Process, in Congressional Deskbook.

 


Fiscal Commission Public Forum 5 of 7

 

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