Chapter 2 Introduction

Government budgets reflect the priorities of policymakers. They specify what programs and activities the government will support and how to raise the money needed to fund them. These choices have far-reaching consequences that affect all members of society. Decisions about government spending are at the heart of democratic governance. Accordingly, the budget process must operate with fairness, integrity, and credibility.

Government spending represents a substantial share of all national spending. As a result, budget decisions can have significant effects on the economy. In addition, fiscal and monetary policies influence investment and other decisions of the private sector. The reverse is also true: The private economy affects government budgets. It can alter the demand for services and cause fluctuations in taxable income.