78 International Journal of Public Budget
For a few years now, the world economy has been bearing and suffering the consequences of the severe fiscal crisis that has affected several state members of the European Union. Many governments allowed the increase of their budget deficits, even in good times, which made their indebtedness levels increase significantly. The fact went unnoticed for several reasons. First, the interest rate in the Euro zone is determined by the European Central Bank and consequently does not reflect the excesses of indebtedness of some countries. So, the financial markets did not recognize the risk differences in the different markets and kept on offering loans to states which were potentially insolvent. Second, the Euro prevented the exchange rates from revealing the high levels of spending and the consequent fiscal unbalances, which happened when each country had its own currency. Finally, some countries concealed the true information to be able to continue receiving the benefits granted by the solvency.
As a consequence of all this, today the situation is extremely complex and the success of the solutions being tried out is obviously uncertain. As the countries in trouble cannot resort to monetary instruments or the exchange rate to stabilize their economies, the only solution seemed to be fiscal, which plainly means increasing taxes and reducing spending, with the consequent recessive effects that these measures might cause. In summary, what was not done during the good times now must be done in times of crisis and this will have a huge impact on demand. There are serious doubts about the chances of imposing these hard measures in some countries, due to their high political cost, but this is an issue which exceeds the limitations of the merely technical analysis performed herein. What is true is that, within the framework of this uncertainty, Germany, which is the locomotive of the European Union, has already observed that the fall of the demand in the Euro zone will affect its interests and has announced its decision to privilege its commercial relation with some countries in Latin America, among which are Brazil, Colombia and Mexico. These countries are seen as an important commercial alternative due to their high growth rates and their fiscal stability in recent years. The important turn in the German policy has the objective of counteracting a possible recession in Europe which would affect its industries. It is good news for the emerging countries and certainly bad news for some of the members of the European Union. The German decision discloses the deep changes taking place in the current power relations in the world, a fact that, surely, is deeply related to the good or bad management of public budgets and finance; issues that constitute the core of the actions of the International Association of Public Budget.
The articles included in the present issue of the International Journal of Public Budget, three of them unpublished, deal with different topics and, on the whole, they constitute a valuable contribution to the development of budgeting techniques and to the better management of the public financial administration in times of crisis.
Raúl Calle and Marcos Makón, in the article titled Cost estimation in public sector entities: A methodological proposal, analyze the new management administrative model for results that are being implemented by most Latin American countries, in which the intention is to leave behind the traditional administration model which gives priority to the means of control and the fulfillment of formal procedures, in order to progress towards a management based on the efficacy and effectiveness criteria that privileges the production of goods and service demanded by society and enables to obtain the results which improve the citizens’ life quality.
The article by Fernanda Luna and Gabriel Vilches, titled Territorial allocation of spending on education: The Argentine case, constitutes a brief review of the usual criteria of resources territorial allocation, where it is proved that the classification per Geographical Location of the national government spending used in the annual budget of resources and spending is insufficient to correct the distribution coefficients because the Geographical Spending does not always match the place of residence of those making use of the offered public goods and, therefore, it is not the correct indicator to carry out the proposed correction.
The article by Martín Ardanaz and Carlos Scartascini titled Why don´t we tax the rich? Inequality, legislative malapportionment, and income tax all over the world states that the empiric evidence shows that democratization in Latin America has not been accompanied by large increases in income taxation in the region and that, on the contrary, indirect taxes, which don’t necessarily fall more heavily on the rich, have acquired more importance, in spite of the substantial increases in the democratic scorings throughout the region over time.
Finally, in a provocative article about the outbreak of the crisis of the Eurozone’s debt, titled German brake debt in the passing lane, Jakob Christian Jekat poses within the field of debate, whether the German debt brake is designed well enough so as to pursue a sustainable fiscal policy and whether the decisions of the German government do really constitute a model for fiscal policy makers in other European countries to imitate.
Through these articles we provide our readers with, the International Journal of Public Budget has sought to extend the field of the most necessary debates for the technicians, officials and specialists who constitute the final target of the effort being made by ASIP since its creation, almost four decades ago.