Chapter 2 Introduction


Government budgets reflect policymakers’ priorities. They specify what programs and activities the government will support and how to raise the revenue necessary to fund them. Decisions about government spending go to the heart of democratic governance. Accordingly, the budget process must operate with fairness, integrity, and credibility. Policymakers must consider broadly the effects of their decisions, including long-term impact on citizens and all levels of government.

Budget decisions can have significant effects on the economy, a significant share of which is government spending. Fiscal and monetary policy influence investment and other decisions of the private sector. The reverse is also true: the private economy affects government budgets through changing demand for services and fluctuations in taxable income.