Using Expenditure-Based Policy Instruments
Leslie Pal (reference below) describes when using expenditure-based instruments may be the appropriate policy response.
Pal writes (p. 141):
“From the policymaker’s point of view, virtually every policy instrument involves expenditure – even giving a speech will entail the cost of speechwriters and distribution of materials. So money is a ubiquitous and universal resource that governments use to affect policy, and rarely, if ever, can expenditure as an instrument be avoided. The point about expenditure-based policy instruments, however, is that money itself is the direct instrument. In this instance, governments are not trying to achieve their objectives or outcomes by changing the information that undergirds behaviour, but rather the calculus of costs, benefits, and financial resources that individuals or organizations undertake before they do something. Producing Canadian films, for example, is risky because of the high probability of not making a profit due to a small domestic market. Government subsidies and tax breaks can change that equation and encourage more Canadian filmmaking. Canadians who live in poverty and who might not be able to afford a proper diet or housing can be aided through cash transfers in the form of income security or assistance payments.
“In Canadian usage, transfers usually apply to payments by government to individuals or other governments that do not involve any form of exchange and have only minimal conditions attached to them. Equalization payments and the Canada Health and Social Transfer (CHST) are prime examples of cash transfers from the federal government to the provinces. Provincial governments also transfer cash to their municipalities to support a wide range of programs. Old Age Security and the Canada Child Tax Benefit are examples of transfers to individuals. The key point is that a cash transfer tends to be provided for broad support rather than in connection with a specific project or endeavour.”
“Grants, even while they have few if any performance conditions attached, are usually provided in connection with a more specific endeavour (e.g., student educational grants). However, in a technical sense grants tend not to be too closely calibrated to the actual costs of engaging in that endeavour.”
Contributions and subsidies
“Contributions and subsidies, on the other hand, have more numerous and detailed conditions, usually demand some measure of performance, and are more carefully calculated to defray some specific proportion of the cost of the endeavour. They differ from loans in that the latter must be repaid.
“Tax expenditures accomplish much the same thing as contributions or subsidies, but through the mechanism of reducing taxes for specific activities and thereby increasing the benefits. Perhaps the most publicly visible tax expenditure in Canada is the Registered Retirement Savings Program (RRSP), where interest in special accounts is tax free and contributions are tax deductible, though the device is used routinely to support everything from small businesses to investments in high technology and research.”
“Vouchers are typically “coupons” for stipulated amounts of money that may be redeemed under certain conditions – the best known example is Food Stamps in the United States.”
Management challenges in expenditure-based instruments
“Expenditure instruments pose substantial management challenges in terms of ensuring that conditions are met and monies are spent appropriately, with some result. The Auditor General has been evaluating grants and contributions by the federal government for more than 20 years, and as early as 1984 identified eight critical management processes for grant and contribution programs: “stating objectives clearly; establishing unambiguous terms and conditions; informing potential applicants of program guidelines; reviewing and approving applications diligently; making payments properly; monitoring individual grants and contributions appropriately; providing good information to management; and assessing program effectiveness” (Auditor General of Canada, 1998).”
See also: Pal’s Classification of Policy Instruments.
Atlas topic, subject, and course
Leslie Pal (2014), Beyond Policy Analysis – Public Issue Management in Turbulent Times, Fifth Edition, Nelson Education, Toronto. See Beyond Policy Analysis – Book Highlights.
Page created by: Ian Clark, last modified 12 April 2017.
Image: Unitiv, at http://www.unitiv.com/it-solutions-blog/bid/30872/Reducing-Capital-Expenditures-in-IT, accessed 12 April 2017.