15 May, 2018

A new look at an old idea: Sound budget management for local governments

New paper from the Institute on Municipal Finance and Governance offers a new approach for designing and implementing fiscal rules to guarantee sound public finances at the local level.

Toronto, May 15, 2018 – The “golden rule” of public finance states that governments should borrow only to invest and not to fund current spending, and that the current budget must always be in balance or have a surplus. In Ontario, all municipalities are subject to legal borrowing limits, with special exceptions for Toronto and York Region.

However, implementing the golden rule is not a question of simply setting limits to deficit and debt. In a new paper released today by the Institute on Municipal Finance and Governance (IMFG), public finance expert Bernard Dafflon presents a new look at the old idea of sound budget management in the public sector.

Does fiscal control over deficit or debt require top-down policies from higher levels of government, or is self-imposed control reasonable for local governments? How should fiscal rules balance the needs of current expenditures with intergenerational equity?

Using the case of Switzerland’s public finances, this paper presents a detailed approach and concrete recommendations for provincial and local governments in Canada and elsewhere.

According to Dafflon, who recently served as a Visiting Scholar at IMFG, success requires the following elements:
– Political will and democratic institutions that support fiscal responsibility,
– The precise design of the budgeting and accounting systems that guarantees the traceability of expenditure and tax decisions but also circumvents political and bureaucratic strategic behaviour, and
– A detailed legal framework for fiscal rules that outlines the budget process, corrective actions when needed, and sanctions when the rules are not respected.

Read the paper

About the Author

Bernard Dafflon was a Visiting Scholar at the Institute on Municipal Finance and Governance in 2017. He is professor emeritus in the Faculty of Economics and Social Sciences at the University of Fribourg, Switzerland. He was chief economist at the Ministry of the Interior and Institutions in the canton of Fribourg from 1977 to 1990 and professor of public finance and policies at the University of Fribourg from 1986 to 2013. He has acted as an independent adviser for several cantonal and local governments in Switzerland, as well as for the Council of Europe, the World Bank, the French Development Agency, the Swiss Agency for Development and Cooperation, and the Forum of Federations.
Bernard Dafflon

About the Institute on Municipal Finance and Governance (IMFG)

The Institute on Municipal Finance and Governance is a research hub and think tank that focuses on the fiscal and governance challenges facing large cities and city-regions. It is located within the University of Toronto’s Munk School of Global Affairs.

For more information, please contact:

Selena Zhang | Manager, Programs and Research
Institute on Municipal Finance and Governance, University of Toronto
selena.zhang@utoronto.ca | 416-978-5117