Lee Kuan Yew School of Public Policy
National University of Singapore
PP5312: Public Financial Management
January-May 2012
Lecturer: Asst. Professor Eduardo Araral, Jr.
Consultation Time: Thursday/Friday (2-6 pm) or by appointment at LKS 2-1
sppaej@nus.edu.sg
Course Description
This course examines key issues in public financial management particularly budgeting/reporting and taxing/Finance.
Budgeting/Reporting: We will explore the function and structure of operating and capital budgets; the budget cycle, including budget preparation, approval, execution, and audit; budget evaluation and budget strategies; budget reform; and accounting, financial reporting, and fiscal and financial analysis.
Taxing/Finance: Subjects include types and structures of taxation, standard criteria for evaluating revenue raising options, and tax administration; intergovernmental fiscal relations; and deficits, surpluses, risks and public private partnerships and debt and cash management. More specifically, we will explore the following policy questions:
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What are the functions of public finance?
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How does public finance affect incomes, prices, savings, investments, balance of payment and monetary growth, GDP and distribution of wealth and poverty?
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How do we now that a country’s public finances are healthy or are at risk?
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How can public financial management improve performance of the public sector?
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What is a good tax policy? What are the pros and cons of income, consumption and property taxes?
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What are the risks in public-private partnership as a financing modality? How can these be addressed?
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How should subsidies be designed?
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What is the best method for financing a deficit? Is it better to tax now (in large amounts) or tax later (in many small amounts over time) to cover a deficit?
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What are some problems with fiscal decentralization?
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What are some of the problems of budgeting in developing countries?
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What lessons can Singapore offer in terms of public finance and financial management?
Course Objectives
The objective of the module is to develop a thorough understanding of basic terms, concepts, and methods in public financial management. While you learn economic reasoning from your economics class, in this module you will be trained in public finance reasoning. These two modules are complementary. The course stresses policy-relevant ideas and applications as opposed to esoteric technical and/or abstract concerns. Best practices and regional / international examples are highlighted throughout the course. Case studies will come from China, Hong Kong, India, Singapore, Laos, Thailand, Brazil, US and Africa. The module is specifically designed for mid-career professionals, although less experienced students may also find it useful.
Course Grade
Grades will be determined as a function of student performance in 10 case studies, a presentation and 2 examinations. Students will come to class prepared, complete in-class assignments, make policy oriented presentations, and participate in discussions and debates. Students will do a mid-term and a final exam,
both of which will be closed book. Grades are derived in the following fashion.
Case Studies (10 x 4) 40%
Mid-Term Exam: 20%
Summary and Reflection 10%
Final Exam: 30%
Grouping
The class will be assigned into 8 groups with 3 members each. I will not entertain requests for group transfers. You are expected to work with others. Each group will make 2 presentations each week (one for summary and reflection and the other for the case study). See groupings below. The only criteria I used is to avoid you working with a classmate from the same country.
Case studies
All groups are required to do a total of 10 case studies beginning week 2. Each group is expected to submit via IVLE a 2-page reflection paper on what lessons they have learned from the case and what would have they done if they were the decision maker in the case. Case papers are to be uploaded at IVLE no later than 9 pm on the day before the class. Late papers will not be accepted. Each case study is worth 4 percent of your total grade and is graded as follows: Excellent = 85-100% (reflects group work, nuanced and insightful, demonstrates mastery); Good = 70-84%; Average = 55-69; Poor = 40-54; Fail = < 40%. Note: Do not be limited by the topic of that week in diagnosing the case. The case requires a creative thinking process that draws on various lectures, your own experiences and from facts of the case. Case abstracts are appended below.
Each group will also be assigned to present towards the end of the class the case study in a given week. Thus, group 1 will present case number 1 in week 2 etc. The presenting group will summarize in 10 minutes the issues and facts of the case then present their analysis, reflections and recommendations. The rest of the class will be randomly called (cold call) to share their thoughts about the case.
Summary and reflection:
Each group will also be assigned to present, at the start of a class, a 10-minute summary and reflection of the previous week’s class. Thus, in week 2, Group 1 will be responsible for the presentation, Group 2 for week 3 etc. The presentation should consist of a summary of key take away points
and application of concepts to real world current policy examples from your country or elsewhere. The group should describe the issues and what can be done to solve them, drawing from class lessons and others. Others can expect a cold call on their reflections. Grades are derived as follows: Excellent = 9 to 10 points (represents group work, professional presentation, insightful, on time); Good = 7-8 points; Average = 5-6; Poor = 0-4 points.
Expectations
1. Educate yourself about public financial management issues from your country and from
others beyond the course material. Financial Times, the Economist Magazine and Business newspapers and IMF reports from your country are good sources.
2. Come to class prepared; lecture notes will be uploaded at least 4 days before the class
3. Actively participate and lead in case and class discussions
Required:
JM. Mikesell, John (2010).
Fiscal Administration: Analysis and Applications for the Public Sector (8
th Edition). Wadsworth Publishing. For sale at Coop and reserved in Law Library
IMF. International Monetary Fund (2001).
Government Finance Statistics Manual. IMF: Washington DC. Download from
http://www.imf.org/external/pubs/ft/gfs/manual/index.htm
Required.
Articles/Cases. As assigned and made available on IVLE.
Other Readings (recommended):
Gruber, Jonathan (2010).
Public Finance and Public Policy (3
rd Edition), Worth Publishers. On reserve in the Law Library.
Rosen, Harvey S. and Ted Gayer (2010).
Public Finance (9
th Edition), McGraw Hill. On reserve in the Law Library.
Diamond, Jack. 2005. Budget Reform in Developing Countries. IMF.
Musgrave, R. 1973. Public Finance: Theory and Practice.
Weimer and Vining, 2004. Introduction to Policy Analysis. Prentice Hall. On reserve at the Law Library. (Focus on discussion of market and government failures).
Acknowledgement:
Some powerpoint slides (Weeks 3-5) were courtesy of Blane Lewis (World Bank)
CASE ABSTRACTS
CASE # 1
1828 The Hyderabad Metropolitan Water Supply and Sewerage Board
This case discusses the efforts by the state of Andhra Pradesh and the Hyderabad Metropolitan Water Supply and Sewerage Board to provide water services to its poorest inhabitants – approximately 1.7 million people. Undermining this challenge is the reality that Hyderabad is located in a comparatively dry region of India, and the Water Board is only able to provide water for an average of two hours per day. To attract investment, the government decides to privatize the Water Board, but the World Bank conditions its support for this privatization on Andhra Pradesh’s ability to develop a program that will provide water to the city’s slums. Questions that can be discussed include: Will privatization provide improved water services to the poor? If not, what reforms can the government pursue that will increase low-income users’ access to drinking water? How might the government attract private investors to a water system with poor access to water resources, low tariffs, and poor management?
CASE # 2
1647 Mayor Anthony Williams and Performance Management in Washington, DC
Abstract:
When Anthony Williams is elected mayor of Washington, DC in November 1998, he inherits a city that had been close to insolvency. Although its financial picture has improved, it has historically lacked the equipment and systems to deliver high-quality city services. Williams had won a convincing victory at the polls in part by emphasizing the need for improved service and accountability. He faces two challenges: both to improve the quality of city services and to devise a way to ensure voters are aware of the extent of the improvement. With both in mind, Williams and his top aides develop a new system to guide city government. The comprehensive performance measurement system requires all city departments to set measurable "scorecard" goals for improving the services they deliver-and to report regularly on their progress in meeting them. This case describes the design and implementation of the DC performance measurement system, with particular focus on several specific departments. The case is designed, specifically, to help students understand the difference between outputs and outcomes, a distinction reinforced by a review and assessment of the goals set by the city departments featured in the case. Data provided in exhibits provides a vehicle for reinforcing the output/outcome distinction-and the tendency of public sector agencies to see outputs as an end in themselves. The appendix, which focuses on the District of Columbia public health department, could serve as the basis of an in-class or out-of-class exercise designed to raise the question of what an appropriate "scorecard" for this department might include.
CASE # 3
1934 Effective Revenue Collection in Nomburo (or not)
Abstract:
John Mwa is the newly appointed head of the Nomburan Revenue Agency (NRA), tasked by incoming Present Orelio with improving revenue collections in the African nation of Nomburo. This case discusses how he goes about reaching performance targets set by the President, albeit facing constraints to do so. Unfortunately, some of the methods he employs to overcome constraints test the limits of political support and authorization. Mwa finds himself in trouble with opposition party members, procurement commissions, the President’s coalition members, and even his own staff. The case asks students to play the role of President Orelio and decide whether Mwa has performed effectively—given that he met most of his performance targets—even though he has undoubtedly created political problems in the process. It is a case that instructors can use to teach about the many dimensions of organizational effectiveness, dangers of narrow performance focus in organizations, and the complexities of performing in constrained environments. It is particularly useful for instructors teaching about management in a developing country context and about revenue collection.
CASE # 4
1493 Municipal Decentralization in Buenos Aires: Creating the Municipality of Hurlingham
Abstract:
As part of its efforts to recover from hyperinflation and an oversized public sector, the government of Argentina specifically the province of Buenos Aires seeks to control costs and improve service in local government. To do so, the provincial government tries a bold strategy: it splits up three large suburban Buenos Aires municipalities into eight new, smaller, jurisdictions. This budgeting, financial management, and political strategy case focuses on the implementation of the move toward smaller, more local government, through the prism of the creation of one of the new municipalities: the town of Hurlingham. The case describes the nuts-and-bolts budget decisions which a transition team of officials must make, how to structure the new government, how to increase tax receipts and the political decisions which its new mayor confronts. He must decide which parts of the new town will get service priority high-voting wealthy districts where tax collection has been low, or poorer neighborhoods from which the new mayor drew key electoral support? This case allows both for rigorous budget analysis and assessment of budget-related political strategy.
CASE #5
1591 Bangkok's Skytrain (A and B): Opening the System
In December 1999 Skytrain, the first rail mass transit line to be financed, built and operated by a private company in at least 50 years, opened in Bangkok, Thailand. Skytrain’s owners had a concession from the Bangkok metropolitan government to build and operate the line for 30 years. Opening the US$1.3 billion line had required Skytrain and the government to overcome many obstacles. But several months after the opening, the line was carrying only one-third the ridership projected and the owners were in serious financial difficulty. The case is designed to stimulate a discussion of what types of public services are most suitable for private provision and what to do when a private project encounters difficulties. Skytrain was an extraordinarily risky project from the point of view of investors, and many of the risks were beyond their control. The government had a large stake in Skytrain’s success, but it was not in a good position to help the investors with many key problem
CASE # 6
1727 The Yofu River Crossing
This fictionalized case describes a public finance policy analysis problem faced by a city in China. In order to reduce downtown congestion and create a pedestrian area, the city wants to provide shuttle transportation in and out of the city from a new parking facility to be built across the river. Careful analysis of benefits and costs suggests that there would be substantial social gains, on balance, from the program. The problem is that there is little likelihood that parking revenues from the new facility would be enough to pay the costs of the program. How should a city proceed when a program valuable from the perspective of the society cannot readily be made self-financing?
CASE # 7
1857 Liquor Tax Reform in Thailand: Competing Interests and Objectives
Abstract:
Income tax cuts for individuals and businesses, ambitious government spending plans, financial assistance for citizens affected by the December 2004 tsunami, rising costs of the national healthcare system, and public pressure to curb alcohol consumption all contributed to the Government of Thailand’s decision to consider raising its excise taxes on alcoholic beverages. By September 2005 the Thai cabinet had to make a decision on reform of the system of liquor taxation. The current scheme was a mixed system that charged excise taxes based on both liquor values and the quantity of alcohol content, whichever yielded higher revenues. The cabinet caught between the competing interests of its own revenue needs, the profit objective of local producers, and consumer preferences and welfare was considering three options for reform proposed by the ministry of Finance's Excise Tax Department. The case reviews key factors that affected the conditions and desires of each stakeholder, as well as provides an international comparative perspective on the taxation of alcoholic beverages. The case can be used in both public policy and business courses, as it demonstrates the dynamic interaction between government policies, corporate strategies, and consumer interests.
CASE # 8
1829.0 Financing the Theun-Hinboun Hydroelectric Project
How does a public-private venture emerge in one of the world’s poorest countries (Laos) and how does it obtain $280 million in financing for a 215 MW hydroelectric facility to supply power – not to the host country, but its neighbor? At the time of the project, Laos had no domestic capital market, and commercial lenders and equity investors believed the country too politically and economically risky. As a result, Laos had almost no foreign direct investment and had never entered into a public-private venture for energy infrastructure.
The case allows the instructor to 1) discuss the difficulties of funding a project in a very poor country, 2) introduce the role of multilateral banks, such as the Asian Development Bank and export credit agencies, 3) discuss the importance of risk allocation in gaining investor confidence, 4) discuss currency risk and its impacts, and 5) touch on the political economy of hydroelectric facilities. It is a good capstone case for a financial module.
CASE # 9
1817.0 Singapore’s State Owned Enterprises
Singapore has experienced exceptional economic success, lifting its self from third world to first world in fewer than four decades. Moreover, public enterprises have been a key instrument in Singapore’s economic growth instead of the obstacle that they are so often in other developing countries. By 2004, however, Singapore was rethinking the role of its public enterprises in part because its economic growth was slowing and its strategy seemed to be faltering. Critics worried that public enterprises were simply not nimble enough to keep pace in an increasingly competitive global economy while defenders argued that a small nation like Singapore could not afford to rely on private companies to make the strategic investments it needed to remain competitive. The debate in Singapore raised interesting questions for other countries. To what extent had Singapore’s public enterprises escaped the efficiency and other problems that seemed to plague public enterprises elsewhere? If Singapore’s enterprises performed better, what factors accounted for the difference? And could these factors be sustained over time and replicated in other contexts?
CASE # 10
Civil Service Reform in Gapura
Course Schedule, Outline, and Reading Assignments at a Glance
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No. |
Date |
Topic |
Readings |
|
1 |
12 Jan |
Course Information and Introduction / Diagnostic Quiz
Evolution of Development Philosophy
Market, government failures and public finance |
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2 |
19 Jan |
Group 1 Summary of Week 1
Scope and Principles of Public Finance
1.Fiscal Discipline Definition and conditions
2. Managing revenues, expenditure and debt
3. Fiscal objectives, sustainability and space
Group 1 presentation of case study # 1 The Hyderabad Metropolitan Water Supply and Sewerage Board |
|
|
3 |
26 Jan |
Group 2 Summary of Week 2
Budgeting, Accounting and Reporting
1.Accounting
2.Budgeting
3.Financial Reporting
4.Budget Evaluation
5.Budget reform: Case of Singapore
Group 2 presentation of case study # 2 Performance Management in Washington DC |
JM 2,4; IMF 3,4,5,6 |
|
4 |
2 Feb |
Group 3 Summary of week 3
Taxation
1.Types of Taxation
2.The Structure of Taxation Around the World
3.Taxes and Tax Policy: Definition and Goals
4.General Tax Policy Evaluation Criteria
5.Optimal Taxation
Group 3 presentation of case study # 3 Effective Revenue Collection in Nomburo (or not) |
JM 7, |
|
5 |
9 Feb |
Group 4 summary of week 4
1.Consumption Tax
2.Property Tax
3. Income Tax
Group 4 presentation of case study # 4 Municipal Decentralization in Buenos Aires: Creating the Municipality of Hurlingham |
JM 8, 9 |
|
6 |
16 Feb |
Mid term – closed book |
|
|
7 |
23 Feb |
Group 5 Summary of week 5
Financing: Public-Private Partnerships
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Modalities
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Financing
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Risk Allocation
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Negotiation
Group 5 presentation of case study # 5: Bangkok Skytrain (A & B) |
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8 |
01 Mar |
Group 6 Summary of week 6
Public Investment Decision Making
1. Cost Benefit Analysis, IRR, NPV
2. Qualitative CBA
3. Cost Effectiveness Analysis
4. Multi-Goal Analysis
Group 6 presentation of case study # 6: Yofu River Crossing
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|
|
9 |
08 Mar |
Group 7 Summary
Public Finance: The Case of Vietnam
Sector Reforms
Fiscal Sustainability
Budget Deficit
Group 7 presentation of case study # 7: Liquor Tax Reform in Thailand: Competing Interests and Objectives
Speaker: Prof Charles Adams (IMF) |
JM 13 |
|
10 |
15 Mar |
Group 8 Summary
Intergovernmental Fiscal Relations and Decentralization
Cases of Brazil, China, US, Russia, Germany
Guest Speaker: Asst Prof Li Hui
Group 8 presentation of case # 8: Financing the Theun-Hinboun Hydroelectric Project |
JM 14,15 |
|
11 |
22Mar |
1. Budget Reform and Frustrations, State Owned Enterprises
2. Budgeting Problems in Developing Countries
Guest Speaker: Dr. Emile Gozali (TBC)
Asian Development Bank
Class Discussion Case # 9: Singapore’s State Owned Enterprises (compare with Vietnam) |
JM 5,6 |
|
12 |
29 Mar |
Public Finance in Singapore
Fiscal Policy
Monetary Policy
Discussion Case # 10: Reforming the Civil Service in Gapura |
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|
13 |
05 Apr |
Break – Review for Finals |
|
|
14 |
12 Apr |
Class Review / Synthesis |
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PP5312 Public Financial Management: Module Map
|
Evolution of Devt Philosophy / Market / Govt. Failure
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Financing
Public Private Partnership
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Taxing
Transfers
Spending
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Financial Reporting and Analysis
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