"To Reduce Budget Errors, Deliberation Should Be Long and Execution Short"

[Asia Economy Reporter Jang Sehee] A study has found that to reduce budget errors, it is desirable to have longer deliberations and shorter execution periods.

On the 16th, An Jung-gi, a doctoral course completer at Seoul National University Graduate School of Public Administration (first author), and Kim Bong-hwan, a professor at Seoul National University Graduate School of Public Administration (corresponding author), revealed this in their paper titled "The Effect of Changes in Budget Execution Period on Unused Funds," published in the Korean Public Finance Association's Journal of Public Finance.

The authors explained from a theoretical perspective that an increase in the budget execution period has conflicting effects on unused funds.

They predicted that a longer execution period allows for flexible responses to unforeseen situations, thereby reducing unused funds. However, as the execution period increases, lawmakers may not be able to accurately estimate the budget during the deliberation process, which could increase unused funds.

The authors conducted an empirical analysis targeting unit projects of central administrative agencies included in seven supplementary budgets (Chugyeong) carried out between 2007 and 2018. The results showed that the effect of increasing unused funds due to a longer budget execution period was greater than the effect of reducing them.

Conversely, they analyzed that when macroeconomic uncertainties such as economic crises or outbreaks of new infectious diseases expand during the budget deliberation period, the negative effect of increasing unused funds worsens.

The authors suggested, "It may be more reasonable to shorten the budget execution period compared to now and decide the budget frequently by reflecting internal and external environmental changes."

They added, "Recently, supplementary budgets have been prepared almost every year. In a situation where supplementary budget preparation is becoming routine due to increased internal and external uncertainties, rather shortening the budget execution period could be an alternative to frequent supplementary budget preparations."