Budgeting and Finance

The Call for a Budgetary Theory: The appeal of Valdimer Key for a budgetary theory marks the interest in public budgeting in modern history. He clearly referred to a normative theory, raising the question: ‘on what basis shall it be decided to allocate X dollars to activity A instead of activity B?’ [Key, in Hyde & Shafritz 1978, p. 20]. A couple of efforts to develop such a theory failed before Aaron Wildavsky took over the relay baton, issuing the first edition of his seminal The Politics of the Budgetary Process that changed the budgetary landscape almost completely2. He argued that the allocation of scarce resources is not a matter of arithmetics or calculation, but a matter of power. On top of that he claimed that of incrementalism offered both the best description of and prescription to the budget process, introducing now common words as the ‘base’ and ‘fair share’ in the vocabulary of budget watchers [Wildavsky 1964]3. Soon, incrementalism became the dominant theory of public budgeting in America and, strange enough, also in Europe where the power of the purse is with the executive rather than the legislative branch of government. Moreover, empirical support was at least mixed, if not to say weak [LeLoup 1978; Rubin 1988].