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THIS ARTICLE ATTEMPTS TO EXPLAIN WHY PREVIOUS EMPIRICAL TESTS OF THE SIZE PRINCIPLE HAVE FAILED TO PRODUCE CONCLUSIVE RESULTS. EMPHASIS IS PLACED ON ASPECTS OF CONSTITUTIONAL CHOICE AND THEIR IMPLICATIONS ARE EXPLORED BY MEANS OF A SIMULATION. A TEST OF THE SIZE PRINCIPLE IS PROPOSED, AND SOME INITIAL EMPIRICAL FINDINGS ARE REPORTED.

Consistent choice in an inconsistent world requires processes for both rational calculation & effective control. The budgetary process incorporates both of these functions. However, students of public sector budgeting tend either to ignore budget execution or to view the time expended by budgeteers on the execution of budgets -- as opposed to their construction -- as a gross misallocation of resources, seriously undervaluing the control function & the budgeteer's role in preventing control loss. At the same time, budgeteers frequently misuse the controls at their disposal. In certain cases (ie, where competitive supply of a public service is justified & in effect) expenditure controls are redundant & serve no real purpose. Budget execution is primarily concerned with two kinds of expenditure controls, allotment controls & fund reports, & is supported by position controls. The immediate purpose of these controls is to insure that purchases are limited to the amounts & purposes specified in the budget act. However, given the typical relationship between the budget agency & the operating bureau, their ultimate function is to prevent the bureau from distorting or concealing cost & production information to increase its bargaining power, & thereby to permit the budget office to ensure that the preferences of the state are at least approximately met. Performance standards & control rules also serve to avoid inconsistency between the budgeteer & the bureau, & to stabilize expectations about the ground rules for bargaining & the likely outcomes of the bargaining process so as to reduce the costs of uncertainty to both sides. 3 Figures, 30 References. HA.

This article provides an analysis of government finance and fiscal policy – taxing and spending – from the perspective of what is termed the new macroeconomics, a part of NIE or new institutional economics. It presents a view that is quite different from that of traditional budget-oriented thinking with respect to how we ought to analyze and measure the consequences of federal government fiscal policy and debt. The author suggests that a macroeconomic approach is more appropriate and makes more sense than traditional conceptions in terms of how we should assess the overall impact and consequences of government finance decisions.