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The glossary in this Portal provides definitions of core terms closely related to the medium-term expenditure framework; and links to other online glossaries.

There is no standardized and generic medium term expenditure framework (MTEF), and hence no single standardized terminology. Still, MTEF is an integral part of both public sector finance management and sector planning; two areas for which a range of international standardized classifications of notions, definitions and terms exist. These classifications, however, were not developed in a coordinated way and not at the same time for the two areas: finance and planning in the public sector in general and education in particular. As a result, the assumption that the two areas share the same or similar terminology is not necessarily accurate. This renders professional planning dialogue difficult between the education ministry and the finance and planning ministries. Lack of a common terminology complicates education MTEF and can give rise to considerable confusion.

The Portal provides glossaries of core terms closely related to MTEF, both its planning dimension and its budget dimension. Experience that will be exchanged through the present web-forum will be used to attempt to generate an education-MTEF specific glossary.  

The following link to other glossaries, and to those that have been used to develop this glossary.
• Support for Improvement in Governance and Management (SIGMA: A joint initiative of the OECD and the European Union, principally financed by the EU). 1999. SIGMA External Audit & Financial Control Glossary. SIGMA.
• OECD - Glossary of Statistical Terms [Download]
• Salvatore Schiavo-campo and Daniel Tommasi. 1999. Managing Government Expenditure. Manila, Asian Development Bank.
• DFID. 2001. Understanding and Reforming Public Expenditure Management: Guidelines for DFID. London, DFID.
• Ministry of Finance, Viet Nam. 2002. Public Expenditure Management Glossary. Hanoi, Ministry of Finance.
• UNESCO Institute for Statistics. 2006. Global Education Digest 2006 Comparing Education Statistics Across the World. Montreal, UNESCO Institute for Statistics. [Download] 
• The United States Senate, Committee on the Budget. 1998. The congressional budget process - an explanation. The United States Senate, Committee on the Budget.
• Thomas S. Bateman and Carl P. Zeithaml. 1993. Management Function & Strategy (Second Edition). USA, Richard D. Irwin, Inc.
• Glossary on Poverty and Social Impact Analysis in the World Bank website
•  The Consumer Driven Health Care website [Download]

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An account is a tool which records, for a given aspect of economic life, (a) the uses and resources or (b) the changes in assets and the changes in liabilities and/or (c) the stock of assets and liabilities existing at a certain time; the transactions accounts include a balancing item which is used to equate the two sides of the accounts (e.g. resources and uses) and which is a meaningful measure of economic performance in itself.


Accountability is a government policy or management concept that means (i) politicians and public officials have to respond periodically to questions concerning their activities (answerability) and (ii) must be held responsible for the exercise of the authority provided to them. For effective accountability, clear lines of responsibility must be firmly established and consistently maintained. Accountability measures should address three questions: accountability by whom; accountability for what; and accountability to whom. To ensure that accountability is properly enforced, there is a need for predictable and meaningful consequences related to performance. In the public sector, accountability of individual officials, within their organisation and to external controlling bodies, is applied most often to how money has been spent and what results have been achieved. Crucial too in democratic systems is the general accountability of ministers to parliament and to the public at large.

Accounting Audit

Procedures used to verify accounting reports and statements.

Accounting controls

Accounting controls are procedures and documentation concerned with safeguarding of assets, the conduct and recording of financial transactions and the reliability of financial records. They are frequently based on standards issued by the ministry of finance or the supreme audit institution to ensure comparability of accounting practices across all ministries and conformity with national and/or international conventions.

Accrual accounting systems and cash accounting systems





Accrual accounting systems recognise transactions or events at the time economic value is created, transformed, exchanged, transferred, or extinguished - and all economic flows (not just cash) are recorded.


Cash accounting systems recognise transactions and events when cash is received or paid. Unlike accrual accounting, cash accounting systems do not recognise non-cash events. A key difference is that cash accounting systems have no record of asset values, which has a significant impact on incentives concerning the use and maintenance of capital.

Accrual-based budget (accrual budgeting)

This term, accrual-based budget, can be interpreted in two ways: (i) budgetary documents that include in addition to cash-based appropriations accrual accounting information; or (ii) budgetary appropriations based on accrual accounting information, e.g. including provision for depreciation. It is a process through which the government agencies are funded and monitored on the basis of their delivery of outputs, which have been costed on full accrual basis.

Administrative controls

Administrative controls are non-financial procedures and records of ministries which ensure compliance with rules on: appointment, promotion, pay, and disciplining of personnel; public procurement (bids, tenders, contract management, etc.); equal opportunities for minority groups; the handling of information flows; and travel and entertainment allowances, etc.


Aid (or “international aid”, “overseas aid”, or “foreign aid”) is the help, mostly economic, which may be provided to communities or countries in the event of a humanitarian crisis or to achieve a socioeconomic objective. Humanitarian aid is therefore primarily used for emergency relief, while development aid aims to create long-term sustainable economic growth.

Allocations and allotments

Allocations and allotments are the authorizations or distributions of funds made by the chief executive or his designee - for example, the finance minister or the budget director - to the ministries permitting them to either commit or pay out funds, or both, within a specified time period and within the amounts appropriated and authorized.

Allocative efficiency

Allocative efficiency refers to the capacity of the government to allocate resources and select programmes and projects in conformity with its objectives. In economic theory, allocative efficiency, also called “Pareto efficiency”, occurs when resources are so allocated that it is not possible to make anyone better off without making someone else worse off. When referring to a situation as Pareto efficient, it is usually assumed that products are being produced in the most efficient (least-cost) way. Pareto optimality is sometimes used interchangeably with Pareto efficiency. Sometimes Pareto optimality is reserved for cases when both production and allocative efficiency are obtained.

Annual budget

An annual budget comprises a statement of the government’s proposed expenditures, revenues, borrowing and other financial transactions in the following year and, in many countries, for two or three further years. The budget is prepared on a cash basis in most countries. It is submitted to parliament, which authorises expenditure by approving either a budget act or an appropriation act that is consistent with the budget proposals.


Asset is a property functioning as a store of value over which ownership rights are enforced by institutional units, individually or collectively, and from which economic benefits may be derived by holding them or using them over a period of time. “Tangible” assets may either be financial (e.g., cash or government securities) or physical (e.g., buildings, roads, national parks, etc.). Assets may also be “intangible” such as copyright or mineral exploitation rights.


An asset must be recognized in the statement of assets and liabilities only when:

·   it is probable that the service potential or future economic benefits embodied in the asset will eventuate; and

·   the asset possesses a cost or other value that can be measured reliably.

Asset management

The term asset management is often used to refer to the investment management of collective investments, whilst the more generic fund management may refer to all forms of institutional investment as well as investment management for private investors. Investment managers who specialize in advisory or discretionary management on behalf of (normally wealthy) private investors may often refer to their services as wealth management or portfolio management often within the context of so-called “private banking”. 


The provision of “investment management services” includes elements of financial analysis, asset selection, stock selection, plan implementation and ongoing monitoring of investments.


Investment management is a large and important global industry in its own right responsible for caretaking of trillions of dollars, euros, pounds and yen. Coming under the remit of financial services many of the world's largest companies are at least in part investment managers and employ millions of staff and create billions in revenue.


An audit is an expert examination of legal and financial compliance or performance, carried out to satisfy the requirements of management (internal audit), or an external audit entity, or any other independent auditor, to meet statutory obligations (external audit). A particular task of internal audit is to monitor management control systems and report to senior management on weaknesses and recommend improvements. (see also financial audit and performance audit)


An employee’s ability to make independent and discrete decisions.

Balance of payments

An international economic element that is an account of goods and services, capital loans, gold, and other items entering and leaving a country, and a factor influencing the ability of an organization to conduct international business in that country successfully.

Balance sheet

Balance sheet is a financial statement showing the values of the stocks of assets and liabilities held by an entity at a particular point in time. A balance sheet is typically compiled at the beginning and end of an accounting period. Balance sheets summarising starting balances, incomes and outflows, and ending balances are generally required for each distinct fund within a government’s accounting structure. However, in practice, very few governments prepare statements of their financial position that can genuinely be described as comprehensive balance sheets covering all assets and liabilities.

Balance sheet budget

A financial budget that forecasts the assets, liabilities, and shareholders’ equity at the end of the budget period.

Balance sheet equation

Assets = Liabilities + Stock - holders' equity.

Balanced budget

From a Keynesian point of view, a balanced budget in the public sector is achieved when the government has enough fiscal discipline to be able to equate the revenues with expenditure over the business cycles. In other words, a government's budget is balanced if its income is equal to its expenditure. This allows for a deficit in periods of low economic prospects that however needs to be matched by a surplus in periods of high economic activity.

Balanced score card

Balanced score card: In 1992, Robert S. Kaplan and David Norton introduced the balanced scorecard, a concept for measuring a company's activities in terms of its vision and strategies, to give managers a comprehensive view of the performance of a business. The key new element is focusing not only on financial outcomes but also on the human issues that drive those outcomes, so that organizations focus on the future and act in their long-term best interest. The strategic management system forces managers to focus on the important performance metrics that drive success. It balances a financial perspective with customer, process, and employee perspectives. Measures are often indicators of future performance.

Since the original concept was introduced, balanced scorecards have become a fertile field of theory and research, and many practitioners have diverted from the original Kaplan & Norton articles. Kaplan & Norton themselves revisited the scorecard with the benefit of a decade's experience since the original article.

Implementing the scorecard typically includes four processes:

1.       Translating the vision into operational goals;

2.       Communicate the vision and link it to individual performance;

3.       Business planning; and

4.       Feedback and learning and adjusting the strategy accordingly.

Bottom-up budgeting

A process of developing budgets in which lower-level and middle managers specify their budgetary needs and top management attempts to accommodate them to extent possible.

Bounded rationality

A less than perfect form of rationality suggestion that in the real world, decision makers are rarely able to conduct a complete, rational analysis because decisions are complex and complete information is unavailable.

Break-even point

The point at which total income equals total expenditure and no loss exists.

Break-even analysis

A quantitative technique based on a graphic model that helps decision makers understand the relationships among sales volume, costs, and revenues in an organization.


Document(s) that include the plan of the future financial activities of the government or a governmental organisation. The budget is generally prepared annually, and comprises a statement of the government’s proposed expenditures, revenues, borrowing and other financial transactions in the following year and, in many countries, for two or three further years. The budget is prepared on a cash basis in most countries. It is submitted to parliament, which authorises expenditure by approving either a budget act or an appropriation act that is consistent with the budget proposals.


The budget approved by the legislature and subsequent additions to it. This may order the executive to make the specified expenditures or authorize the executive to make expenditures up to the amounts specified. The authorization to spend may be given to individual ministries or departments or it may be granted specifically to the chief executive or his/her representative who retains the freedom to subsequently authorize spending by the ministries.


The process of stating in quantitative terms, usually dollars, planned organizational activities for a given period of time. It can also be described that the process of investigating what is being done and comparing the results with the corresponding budget data to verify accomplishments or remedy differences. Also called budgetary controlling.

Budget Process

Budget process is the vehicle by which the government sets its overall budget plans and within which decisions are made on the allocation of funds.

Capital budget

Capital budget (see capital expenditure)

Capital charge

In a very limited number of countries (e.g. New Zealand), a capital charge is applied to the assets of government ministries/agencies. Introducing a capital charge is aimed at giving incentives to spending agencies to use their capital more efficiently. It requires a proper system for accounting for, and valuing capital assets.

Capital expenditure

Capital expenditure incurred for the acquisition of land and other physical assets, intangible assets, government stocks, and non-military, non-financial assets, of more than a minimum value, with an expected lifetime of more than one year. Capital expenditures are often recorded in a separate section (or capital account) of the budget, or into an entirely separate budget for capital expenditures. All expenditures that are not capital are “current”.

Capital expenditure on education
Expenditure for assets that last longer than one year. It includes expenditure for construction, renovation and major repairs of buildings and the purchase of heavy equipment or vehicles.

Capital expenditures budget

A type of budget that involves a plan for the acquisition or divestiture of major fixed assets, such as land, buildings, or equipment.

Cash accounting systems

 Cash accounting systems (see accrual accounting systems)

Cash budget

A financial budget that projects future cash flows arising from cash receipts and disbursements by the organization during a specified period.

Cash flow

Cash flow is an accounting term that refers to the amounts of cash being received and spent by a business during a defined period of time, sometimes tied to a specific project. Measurement of cash flow can be used

·   to evaluate the state or performance of a business or project.

·   to determine problems with liquidity. Being profitable does not necessarily mean being liquid. A company can fail because of a shortage of cash, even while profitable.

·   to generate project rate of returns. The time of cash flows into and out of projects are used as inputs to financial models such as internal rate of return, and net present value.

·   to examine income or growth of a business when is believed that accrual accounting concepts do not represent economic realities. Alternately, cash flow can be used to validate the net income generated by accrual accounting.

Cash flow as a generic term may be used differently depending on context, and certain cash flow definitions may be adapted by analysts and users for their own uses. Common terms (with relatively standardized definitions) include operating cash flow and free cash flow.

Cash management

The process of developing agency and central cash flow forecasts, the release of funds to spending agencies, the monitoring of cash flows and expected cash requirements, the issue and redemption of government securities for financing government programmes.

Cash-based budgeting

Cash-based budgeting: a situation in which there is no cash borrowing to fund expenditure so spending is limited to cash receipts. In this environment, any fall in revenue relative to forecast immediately feeds though into cuts in within-year expenditure.


Centralisation (or centralization), as opposed to decentralization, is the act to gather power to the center level from the local level, and it is the process by which the activities an organization, particularly those regarding decision-making, become concentrated within a particular location and/or group. In political science this refers to the condition of a government’s power – both geographically and political, into a centralized government.


At the organizational level, centralization is a vertical coordination method that addresses the extent to which power and authority are retained at the top organizational levels.

Chart of accounts

The charts of accounts is the the classification of transactions and events (payments, revenues, depreciation, losses, etc.) according to their economic, legal, or accounting nature. It defines the organisation of the ledgers kept by government accountants.

Civil society

Civil society is composed of the totality of voluntary civic and social organizations and institutions that form the basis of a functioning society as opposed to the force-backed structures of a state (regardless of that state's political system) and commercial institutions.

There are myriad definitions of civil society. The London School of Economics Centre for Civil Society working definition is illustrative:

Civil society refers to the arena of uncoerced collective action around shared interests, purposes and values. In theory, its institutional forms are distinct from those of the state, family and market, though in practice, the boundaries between state, civil society, family and market are often complex, blurred and negotiated. Civil society commonly embraces a diversity of spaces, actors and institutional forms, varying in their degree of formality, autonomy and power. Civil societies are often populated by organisations such as registered charities, development non-governmental organisations, community groups, women's organisations, faith-based organisations, professional associations, trade unions, self-help groups, social movements, business associations, coalitions and advocacy groups.


The element of the task environment that includes those individuals and organizations that purchase an organization's products and/or services.

Contingent liability

A contingent liability is one that depends on the occurrence of a specific event to materialize (e.g., default by a guaranteed debtor). Obligations are therefore not yet actual liabilities, and may never be if the specific contingency does not materialise.

Contingency perspective

An approach to the study of management proposing that the managerial strategies, structures, and processes that result in high performance depend on the characteristics, or important contingencies, of the situation in which they are applied.


A contract is a legally binding exchange of promises or agreement between parties that the law will enforce.


Financial control
Aspects of management (or internal) control that relate to financial issues and performance. See also management control.

Management control (internal control)
Defined as “the organisation, policies and procedures used to help ensure that government programmes achieve their intended results; that the resources used to deliver these programmes are consistent with the stated aims and objectives of the organisations concerned; that programmes are protected from waste, fraud and mismanagement; and that reliable and timely information is obtained, maintained, reported and used for decision-making” (INTOSAI). In practice, management control systems embrace a wide range of specific procedures, including, for example, controls on accounting, processes, procurement, separation of duties and financial reporting. Management control systems require effective communications within an organisation and need to be supported by sound internal audit procedures. It is the responsibility of an organisation’s management to establish and monitor management control systems, not that of the external auditor. However, an external auditor should comment on the absence or adequacy of such systems since a consequence of good management controls is that less detailed auditing of individual documents and transactions will be necessary.

Accounting controls
Procedures and documentation concerned with safeguarding of assets, the conduct and recording of financial transactions and the reliability of financial records. They are frequently based on standards issued by the ministry of finance or the supreme audit institution to ensure comparability of accounting practices across all ministries and conformity with national and/or international conventions.

Administrative controls
Non-financial procedures and records of ministries which ensure compliance with rules on: appointment, promotion, pay, and disciplining of personnel; public procurement (bids, tenders, contract management, etc.); equal opportunities for minority groups; the handling of information flows; and travel and entertainment allowances, etc.


There are many different definitions of corruption. The simplest, and broadest, is “the misuse of public or private position for direct or indirect personal gain”.

Cost-benefit analysis

Cost-benefit analysis is a technique for deciding whether to make a change. As its name suggests, it compares the values of all benefits from the action under consideration and the costs associated with it. Cost-benefit analysis involves the application of three logical steps: (i) defining objectives and alternatives for accomplishing those objectives; (ii) analysing incremental changes with each alternative intervention versus without the respective alternative; and (iii) comparing costs and benefits of the various alternatives.

Current expenditure

Current expenditure is expenditure other than for capital transfers or the acquisition of land, intangible assets, government stocks, or nonmilitary durable goods of greater value than a minimum amount and to be used in the process of production for more than a period of one year.

Current expenditure on education
Expenditure for goods and services consumed within the current year and which would be renewed if needed in the following year. It includes expenditure on: staff salaries, pensions and benefits; contracted or purchased services; other resources including books and teaching materials; welfare service; and other current expenditure such as subsidies to students and households, furniture and minor equipment, minor repairs, fuel, telecommunications, travel, insurance and rents.

Current revenue

All revenue from taxes and from nonrepayable or nonrepaying receipts other than from grants, from the sale of land, intangible assets, government stocks, or fixed capital assets, or from capital transfers.


A set of data organized efficiently in a central location so that it can serve a number of information system applications.


Debt is that which is owed; usually referencing assets owed, but the term can cover other obligations. In the case of assets, debt is a means of using future purchasing power in the present before a summation has been earned. Some companies and corporations use debt as a part of their overall corporate finance strategy.

A debt is created when a creditor agrees to lend a sum of assets to a debtor. In modern society, debt is usually granted with expected repayment; in many cases, plus interest. Historically, debt was responsible for the creation of indentured servants.

Debt capital

A type of financing available to entrepreneurs that involves a loan to be repaid, usually with interest.

Debt management ratios

Financial ratios that assess the extent to which an organization uses debt to finance investments, as well as the degree to which it is able to meet its long-term obligations.


Organizational structure in which many individuals or sub-units can make decisions. At the organizational level, a vertical coordination method that addresses the extent to which power and authority are delegated to lower levels.


Decentralization is generally divided into the following categories:

Delegation: The most “light” kind of decentralization, involving ad hoc transfer of responsibility to public agencies. At the organizational level, a means of vertical coordination that involves the assignment of part of a manager's work to others along with both the responsibility and the authority necessary to achieve expected results.

Deconcentration: Where at the decentralized levels agents of the central government are responsible for activities and accountable directly to central government. Deconcentration is generally prevalent where decentralized entities are dependent on the central government for most of their revenues (vertical imbalance).

Devolution: Where local government employees are responsible for administering fiscal transfers from the central level, and are accountable to local government and not to central government. Devolution generally occurs where decentralized entities raise a significant part of their revenues.

Privatization: Privatization is sometimes considered as a form of decentralization, where government activities are transferred to the private sector. This is a complicated area, partly because of the issues of contingent liabilities on government and of hidden fiscal costs.


Deconcentration (see decentralization)


Deficit on a commitment basis is defined as the cash deficit plus the net increase in arrears, or expenditure at the verification stage plus “lending minus repayments” minus revenues (on a cash basis). This measure of the deficit should not include commitments related to undelivered orders and multi-year commitments.

A budget deficit occurs when an entity (often a government) spends more money than it takes in. The opposite is a budget surplus. The size of a governmental budget deficit is often an important political issue as well as one of economic policy. Fiscal conservatives denounce deficit spending and advocate balanced budgets. Keynesians argue that under some circumstances, deficit spending is justified. "Starve-the-beast" strategies usually lead to high budget deficits.

An accumulated deficit over several years (or centuries) is referred to as the government debt. Often, a certain part of spending is dedicated to paying of debt with certain maturity, which can be refinanced by issuing new government bonds. That is, a fiscal deficit leads to an increase in an entity's debt to others. A deficit is a flow. And a debt is a stock. Debt is essentially an accumulated flow of deficits. Any deficit must, ultimately, be repaid, either through taxation, or seignorage. The Ricardian equivalence hypothesis states that this means a public deficit is exactly the same as a tax rise. The existence of a deficit has in some cases led to the existence of a capital market and been a great benefit to economic activity.


Delegation (see decentralization)


An aspect of organization structure involving the clustering of individuals into units and of units into departments and larger units in order to facilitate achieving organizational goals.


The reduction in the value of an asset over time that is brought about through physical use or obsolescence. Under accrual accounting, depreciation estimated over the useful life of an asset is progressively deducted (written off) from the value of the asset each year. Depreciation as recorded in business accounting, or as allowed for taxation purposes, may deviate from the value of consumption of fixed capital estimated for the national accounts, especially during periods of inflation. In the productivity literature, value changes due to obsolescence are reflected in the capital gains/loss term of the user cost formula.


Deregulation is a subset of regulatory reform and refers to complete or partial elimination of regulation in a sector to improve economic performance.

Development budget

Public investments brought together in one plan intended to develop the economic and social potential of the whole economy or a specific area. They often include both capital and current spending on investment projects. In developing countries they are often mainly, but not exclusively, financed externally.


Devolution (see decentralization)

Discretionary expense center

A responsibility center whose budgetary performance is based on achieving its goals by operating within predetermined expense constraints set through managerial judgment or discretion.

Discretionary spending

This refers to the part of the budget which the government and the legislature must each year decide to spend for the next fiscal year, such as for housing, education or foreign aid. It is to be contrasted with “mandatory spending” on those items where there exists a legal requirement for the government to provide funds and a permanent appropriation authorising such expenditures. Interests on the debt and entitlement programmes are examples. The “mandatory” part of the budget is often much larger than the discretionary portion.

Economic classification (of government expenditure)

Economic classification (of government expenditure): Classification of expenditure by the nature of the transaction, that is requited or unrequited, for current or capital purposes, kind of goods or services obtained, and sector or sub sector receiving transfers. It is generally undertaken as a measure of the nature and economic effect of government operations.

Economic contraction

An economic contraction is a reduction in goods and services for sale in the market place. Typically it relates to a downturn in production caused by external factors such as weather, or by such internal factors as taxes, regulatory constraints or other impacts on producer incentives. Economic contraction and expansion relate to overall output of all goods and services whilst the terms inflation and deflation relate to the value of money.

Economic wellbeing

Economic wellbeing refers to quality of life of a population in terms of living in decent homes, not having to suffer poverty, furthering their education and moving on to gainful employment are all factors that contribute to young people achieving economic wellbeing. Personal or household income is generally regarded as the single best measure of the degree to which people are "well off." But other factors also contribute to people’s well-being. Extended measures of well-being gauge how people are faring at the household level. Included are possession of consumer durables, housing and neighborhood conditions, and the meeting of basic needs. Indicators of children’s well-being are used to take a closer account of how well children progress to adulthood and include measures of cognitive development, social interactions, health, and successful completion of school.


Empowerment refers to increasing the spiritual, political, social or economic strength of individuals and communities. It often involves the empowered developing confidence in own capacities.

Sociological empowerment often addresses members of groups that social discrimination processes have excluded from decision-making processes through - for example - discrimination based on race, ethnicity, religion, and gender. It is worth noting that the empowerment-techniques are often associated with feminism: consciousness-raising.


In institutional economics, entitlement is a relationship, such as ownership or leasehold, to an asset or a stream of income, as distinct from the income or asset itself. In a private ownership market economy, entitlements may be based on inheritance or transfer, or on acquisition of commodities through trade, entrepreneurship, or own labour. The concept of entitlements comes from law, and is useful to underscore institutional structure - whether of property ownership or a job contract. It links economic outcomes to social elements, the law and practice.

Entitlement programme (demand-led programme)
Any spending programme where expenditure is open-ended (usually transfer/grant payments) and where beneficiaries must be paid or given transfers/grants if they meet certain criteria, as defined in legislation or government regulations. Some common examples are found in social security programmes, unemployment programmes, and poverty-reduction programmes.

Envelope budgeting

A personal budget is a finance plan that allocates future personal income towards expenses, savings and debt repayment. Past spending and personal debt are considered when creating a personal budget. There are several methods and tools available for creating, using and adjusting a personal budget.

Equity (vertical equity, horizontal equity)

In financial term, equity refers to the value of the interest of an owner or partial owner in an asset.

When discussing income distribution in socio-economic context, it is usual to distinguish between vertical equity and horizontal equity. Vertical equity relates to the relative treatment of individuals (families or households) at different income levels. Horizontal equity relates to the way in which individuals at the same income level are treated. Vertical equity tends to be the focus of income distribution studies. It turns out, however, that often the combined impact of taxes, transfers, and benefits results in individuals at different income levels being treated very unequally, and it is not uncommon for the ranking of individuals in similar circumstances in the income distribution to be markedly affected by fiscal policy. This often reflects well-defined objectives of fiscal policy, such as a desire to encourage particular patterns of consumption, to promote home ownership or saving for retirement, or to foster regional development. It may, however, reflect inadequate administration or capricious discrimination. Most analyses of income redistribution take no account of rankings, be they intentional or unintentional. However, studies that have attempted to reflect re-ranking have revealed a tendency for redistribution, especially through taxation, to be overestimated by the standard procedure.


In the strict sense, an estimate is the particular value yielded by an estimator in a given set of circumstances. The expression is widely used to denote the rule by which such particular values are calculated. It seems preferable to use the word estimator for the rule of procedure, and estimate for the values to which it leads in particular cases.

In the practical context, estimates are forecasts of revenue and vote Ministers’ requests for authority from Parliament to incur expenditure and liabilities; i.e., the estimate of what revenue will be raised and expenditure incurred during the coming fiscal year.

External Audit

A financial audit involving the review and verification of the fairness of an organization's financial statements that is conducted by an independent auditor.

Extra-budgetary funds/accounts

Extra-budgetary funds/accounts (EBF): The term generally refers to government activities that are not included in the annual budget presentation. Moreover, EBFs may be subject to different systems of cash management, control and reporting than the budget itself. A wide variety of extra-budgetary arrangements are used, including funds (such as social security funds) set up under separate legislation, commodity funds that use proceeds of commodity aid, and earmarking certain revenues for specific purposes.

Financial audit

Financial audit (regularity audit) comprising:

·   Attestation of financial accountability of accountable entities, involving examination and evaluation of financial records and expression of opinions of financial statements.

·   Attestation of financial accountability of the government administration as a whole.

·   Audit of financial systems and transactions including an evaluation of compliance with applicable statutes and regulations.

·   Audit of internal control and internal audit functions.

·   Audit of the probity and propriety of administrative decisions taken within the audited entity.

·   Reporting of any other matters arising from or relating to the audit that the SAI considers should be disclosed.

Financial budgets

Budgets that outline how an organization is going to acquire its cash and how it intends to use the cash.

Financial management

The legal and administrative systems and procedures put in place to permit government ministries and agencies to conduct their activities so as to ensure correct usage of public funds that meets defined standards of probity, regularity, efficiency and effectiveness. Financial management includes the raising of revenue; the management and control of public expenditure; financial accounting and reporting; cash management; and, in some cases, asset management.

Financial statement

A summary of a major aspect of an organization's financial status which is used as a financial control technique.

Fiscal Policy

Fiscal policy is related to Government spending policies that influence macroeconomic conditions. These policies affect tax rates, interest rates, and government spending, in an effort to control the economy. Since, the 1980s, most Western Countries have held a "tight" policy, limiting public expenditure.


The severest form of an irregularity. In respect of expenditure, it includes any intentional act or omission relating to:

·   The use or presentation of false, incorrect or incomplete statements or documents, which has as its effect the misappropriation or wrongful retention of funds.

·   Non-disclosure of information in violation of a specific obligation, with the same effect.

·   The application of funds for purposes other than those for which they were originally granted, with the same effect.


In respect of revenue, fraud includes any intentional act or omission relating to:

·   The use or presentation of false, incorrect or incomplete statements or documents, which has as its effect the illegal diminution of the resources of the budget.

·   Non-disclosure of information in violation of a specific obligation, with the same effect.

·   Misapplication of a legally obtained benefit, with the same effect.

Functional classification (of government expenditure)

Functional classification (of government expenditure): Classification of expenditure by the purpose of which transactions are undertaken. It is generally used to measure the allocation of resources by government to the promotion of various activities and objectives in the country.

General equilibrium analysis

A simultaneous analysis of all capital, product, and labor markets throughout the economy; it shows, for instance, the impact on all prices and quantities of immigration or a change in taxes.

Government expenditure classification

Economic classification: Classification of expenditure by the nature of the transaction, that is requited or unrequited, for current or capital purposes, kind of goods or services obtained, and sector or sub sector receiving transfers. It is generally undertaken as a measure of the nature and economic effect of government operations.  


Functional classification: Classification of expenditure by the purpose of which transactions are undertaken. It is generally used to measure the allocation of resources by government to the promotion of various activities and objectives in the country.


Grants are transfers made in cash, goods or services for which no repayment is required. They are unrequited, nonrepayable, noncompulsory payments between governments or international institutions. The term is sometimes also used to refer to transfers of this nature made by government to all types of recipients.


In the Government Finance Statistics (GFS), a grant is a voluntary current or capital transfer between government units, or between a multi-national organisation and a national government. In addition, a voluntary transfer to a private organisation or person is also often called a grant.


Information Technology (IT) is: "the study, design, development, implementation, support or management of computer-based information systems, particularly software applications and computer hardware." In short, IT deals with the use of electronic computers and computer software to convert, store, protect, process, transmit and retrieve information, securely.

In this definition, the term "information" can usually be replaced by "data" without loss of meaning. Recently it has become popular to broaden the term to explicitly include the field of electronic communication so that people tend to use the abbreviation ICT (Information and Communication Technology).

ICT transmit, store, create, share or exchange information. ICT include: radio, television, video, DVD, telephone, satellite systems, computer and network hardware and software.


In economics, an incentive is any factor (financial or non-financial) that provides a motive for a particular course of action, or counts as a reason for preferring one choice to the alternatives. Since human beings are purposeful creatures, the study of incentive structures is central to the study of all economic activity (both in terms of individual decision-making and in terms of co-operation and competition within a larger institutional structure).

Income redistribution

Income redistribution, or the redistribution of wealth, is a political policy usually promoted by members of the political left, and opposed, or less strongly supported, by members of the political right. The basic premise of the redistribution of wealth is that money should be distributed so it benefits all members of society, and that the rich should be obliged to assist the poor.


Today, income redistribution occurs in some form in most democratic countries, most commonly through income-adjusted taxes (in which the amount of tax paid is directly connected to one's income), some of which goes to fund welfare programs to assist the poor.

Income statement

A financial statement that summarizes the financial results of an organization operations over a specified time period such as a quarter or a year.


In mainstream economics, the word “inflation” refers to a general rise in prices measured against a standard level of purchasing power. Previously the term was used to refer to an increase in the money supply, which is now referred to as expansionary monetary policy or monetary inflation. Inflation is measured by comparing two sets of goods at two points in time, and computing the increase in cost not reflected by an increase in quality. There are, therefore, many measures of inflation depending on the specific circumstances. The most well known are the consumer price index (CPI) which measures consumer prices, and the GDP deflator, which measures inflation in the whole of the domestic economy.

Information disclosure

Information disclosure means the giving out of information, either voluntarily or to be in compliance with legal regulations or workplace rules.

Informational asymmetry (asymmetrical information)

In economics, information asymmetry occurs when one party to a transaction has more or better information than the other party. (It has also been called asymmetrical information). Typically, it is the seller that knows more about the product than the buyer, however, it is possible for the reverse to be true: for the buyer to know more than the seller.


The resources used to produce outputs. Inputs are usually expressed as amounts of expenditure or of resources themselves (e.g., the number of employee/days). An input to one activity may be the output of an earlier activity.

The products and services produced directly by a programme or activity. Outputs are important e.g., in setting targets for staff to achieve and measuring performance, but do not in themselves indicate the extent to which progress has occurred toward achieving a programme’s ultimate purpose. Depending on their nature, outputs may or may not be easy to measure, e.g., the number of hospital cases is easier to measure than the quality of advice on a policy issue submitted by a health official to the minister concerned.

Economic or social changes brought about by a policy measure, programme or activity. Outcomes are distinct from outputs, which measure the immediate effects of a programme or activity. For example, the outcome of a random breath-testing campaign conducted by the police may be a decline in drunk driving, while one of the outputs could be the number of drivers charged with exceeding the legal alcohol limit. Programmes usually have two types of outcomes: (i) End outcomes that reflect the desired end or ultimate results that the programme or activity aims to achieve; (ii) Intermediate outcomes that are expected to lead to the ends desired, but are not themselves ends. See also impact, outputs, performance indicators and performance measurement.


Institution is sometimes used synonymously with the term “organisation” or “body”, e.g. a ministry or government office. Institutions comprise any set of premises in a permanent structure or structures designed to house (usually large) groups of persons who are bound by either a common public objective or a common personal interest. Such sets of living quarters usually have certain common facilities shared by the occupants (baths, lounges, dormitories and so forth). Hospitals, military barracks, boarding schools, convents, prisons and so forth fall within this category. However, the term is also increasingly used in a different sense, to describe the formal and informal rules that determine behaviour, and the enforcement of these rules.


The activity of insurance is intended to provide individual institutional units exposed to certain risks with financial protection against the consequences of the occurrence of specified events. 


It is also a form of financial intermediation in which funds are collected from policyholders and invested in financial or other assets which are held as technical reserves to meet future claims arising from the occurrence of the events specified in the insurance policies.

Intergenerational equity

Intergenerational equity is equality in treatment for different generations. Conversations about intergenerational equity occur across several fields. They include transition economics, social policy, and government budget-making. Intergenerational equity is also explored in environmental concerns, including sustainable development, global warming and climate change. 


Conversations about intergenerational equity are also relevant to social justice arenas as well, where issues such as health care are equal in importance to youth rights and youth voice are pressing and urgent. There is a strong interest within the legal community towards the application of intergenerational equity in law.

Investment management

Investment management is the professional management of various securities (shares, bonds etc.) and other assets (e.g., real estate), to meet specified investment goals for the benefit of the investors. Investors may be institutions (insurance companies, pension funds, corporations etc.) or private investors (both directly via investment contracts and more commonly via collective investment schemes e.g., mutual funds).

Investment risk

On ground of assurance of the return, there are two kinds of Investments - riskless and risky. Riskless investments are guaranteed, but since the value of a guarantee is only as good as the guarantor, those backed by the full faith and confidence of a large stable government are the only ones considered "riskless." Even in that case the risk of devaluation of the currency (inflation) is a form of risk appropriately called "inflation risk." Therefore no venture can be said to be by definition "risk free" - merely very close to it where the guarantor is a stable government.

Leasing (of an asset)

Leasing refers to the renting of an asset for a given period of time, as an alternative to outright purchase.


Elected representatives who have responsibility for passing legislation, including the appropriation act, which gives the executive authority to make expenditures according to the budget.


·   A liability is an obligation which requires one unit (the debtor) to make a payment or a series of payments to the other unit (the creditor) in certain circumstances specified in a contract between them. It must be recognized in the statement of assets and liabilities only when: it is probable that the future sacrifice or service potential or future economic benefits will be required; and

·   the amount of the liability can be measured reliably.


In general, liberalization refers to a relaxation of previous government restrictions, usually in areas of social or economic policy. Liberalization of autocratic regimes may precede democratization (or not, as in the case of the Prague Spring). In the arena of social policy it may refer to a relaxation of laws restricting for example divorce, abortion, homosexuality or drugs. Most often, the term is used to refer to economic liberalization, especially trade liberalization or capital market liberalization.

Life cycles

Predictable stages of development.

Life-cycle hypothesis

The Life cycle hypothesis (LCH) is an economic concept analysing individual consumption patterns. It was developed by the economists Irving Fisher, Roy Harrod, Alberto Ando and Franco Modigliani. Unlike the Keynesian consumption function, which assumes consumption is entirely based on current income, LCH assumes that individuals consume a constant percentage of the present value of their life income.


A defensive strategy that entails selling or dissolving an entire organization. In finance, liquidation is also sometimes used as convenient shorthand for converting an asset to cash.


Loans are financial assets that are created when creditors lend funds directly to debtors, that are evidenced by non-negotiable documents, or for which the lender receives no security evidencing the transaction.

Local government (or local authorities)

Local government is a collection of public bodies with authority over a subdivision of a significant area of a country’s territory. It is either the third tier in federal countries or the second and third tiers in unitary countries (regions, counties, municipalities, etc.) To exist as a separate entity, a local government body must have the authority to exercise powers independently from other levels of general government.

Macroeconomic framework

Macroeconomic framework: macroeconomic assumptions underpinning the budget. It is prepared in the strategic planning phase and provides a forecast of the overall resource envelope for the upcoming budget. A medium-term macroeconomic framework typically includes projections of the balance of payments, the real sector (or production sector), the fiscal accounts and the monetary sector. It is a tool to check the consistency of assumptions or projections concerning economic growth, the fiscal surplus or deficit, the balance of payments, the exchange rate, inflation, credit growth and its share between the private sector and the public sector, policies on external borrowing, etc.

Management control (internal control)

Management control (internal control) is defined as “the organisation, policies and procedures used to help ensure that government programmes achieve their intended results; that the resources used to deliver these programmes are consistent with the stated aims and objectives of the organisations concerned; that programmes are protected from waste, fraud and mismanagement; and that reliable and timely information is obtained, maintained, reported and used for decision-making” (INTOSAI). In practice, management control systems embrace a wide range of specific procedures, including, for example, controls on accounting, processes, procurement, separation of duties and financial reporting. Management control systems require effective communications within an organisation and need to be supported by sound internal audit procedures. It is the responsibility of an organisation’s management to establish and monitor management control systems, not that of the external auditor. However, an external auditor should comment on the absence or adequacy of such systems since a consequence of good management controls is that less detailed auditing of individual documents and transactions will be necessary.

Medium-term budget framework (MTBF)

Medium-term budget framework (MTBF) (see medium-term expenditure framework)

Medium-term expenditure framework (MTEF)

Medium-term Fiscal Framework (MTFF): A MTFF is the first, necessary step towards an MTEF. It typically contains a statement of fiscal policy objectives and a set of integrated medium-term macroeconomic and fiscal targets and projections of revenue, expenditure and financing over the medium-term.

Medium-term Budget Framework (MTBF): A MTBF builds on this first step by developing medium term budget estimates for individual spending agencies. The objective of an MTBF is to allocate resources to the nation’s strategic priorities and ensure that these allocations are consistent with overall fiscal objectives. This gives some degree of budget predictability to spending agencies, while ensuring overall fiscal discipline. In fact, a MTBF is the most basic type of MTEF.

Medium-term Expenditure Framework (MTEF): A MTEF develops the approach further by adding elements of activity and output based budgeting to the MTBF. These methods seek to improve the value for money of public spending, in addition to reinforcing fiscal discipline and strategic prioritization. A MTEF can also be defined as a whole-of-government strategic policy and expenditure framework within which ministers and line ministries are provided with greater responsibility for resource allocation decisions and resource use. The key to a successful MTEF is that institutional mechanisms assist and require relevant decision-makers to balance what is affordable in aggregate against the policy priorities of the country. The MTEF consists of a top-down resource envelope, a bottom-up estimation of the current and medium term costs of existing policy and, ultimately, the matching of these costs with available resources.

Medium-term fiscal framework (MTFF)

Medium-term fiscal framework (MTFF) (see medium-term expenditure framework)

Merit good

A merit good is a product that society values and judges that everyone should have regardless of whether an individual wants them. In this sense, the government (or state) is acting paternally in providing merit goods and services. They believe that individuals may not act in their own best interest in part because of imperfect information. Consumers and producers require complete information if they are to make efficient choices. In perfectly competitive markets we assume that all agents in the market have perfect information about the availability of goods and services and also the prices charged by suppliers. Consumers can make purchasing decisions on the basis of full and free information on the products that they are buying. In reality, all of us experience information deficits which can lead to a misallocation of resources. Information failure occurs when people have inaccurate, incomplete, uncertain or misunderstood data and so make potentially “wrong” choices. Consumers can never be expected to have a full-informed view about the products they are faced with in each and every market. Searching for information is time consuming and carries an obvious opportunity cost. Likewise, producers do not have full information about the products and prices being charged by their competitors and the information about the benefits that can be derived. Good examples of merit goods include health services, education, work training programmes, public libraries, Citizen's Advice Bureaux and inoculations for children and students.

Monetary policy

Management of the money supply, under the direction of the Board of Governors of the reserve bank system, with the aim of achieving price stability and full employment. Government actions in guiding monetary policy include currency revaluation, credit contradiction or expansion, rediscount policy, regulation of bank reserves and the purchase and sale of government securities.


In economics, a monopoly (from the Latin word monopolium - Greek language monos, one + polein, to sell) is defined as a persistent market situation where there is only one provider of a product or service. Monopolies are characterized by a lack of economic competition for the good or service that they provide and a lack of viable substitute goods. 

Monopoly should be distinguished from monopsony, in which there is only one buyer of the product or service; it should also, strictly, be distinguished from the (similar) phenomenon of a cartel. In a monopoly a single firm is the sole provider of a product or service; in a cartel a centralized institution is set up to partially coordinate the actions of several independent providers (which is a form of oligopoly).

National expenditure

Capital formation and final consumption grouped together constitute national expenditure.

National income

National income is the total value of the primary incomes receivable within an economy less the total of the primary incomes payable by resident units.

National responsiveness strategy

A strategy of allowing subsidiaries to have substantial latitude in adapting products and services to suit the particular needs and political realities of the counties in which they operate.

Non-government organization (NGO)

NGOs are defined as private organizations that pursue activities to promote the interests of the poor, protect the environment, provide basic social services, relieve suffering or undertake community development. NGOs often differ from other organizations in the sense that they tend to operate independent from government, are value-based and are generally guided by principles of community and cooperation. There are two major categories of NGOs: (i) operational NGOs, whose primary purpose is the design and implementation of development-related projects, and; (ii) advocacy NGOs, whose primary purpose is to defend or promote a specific cause and who seek to influence policies and practices.

Non-performing assets

Non performing assets: is any asset that is not effectively producing income. For example, an overdue loan would be considered non-performing.

Non-performing asset also means an asset or account of borrower, which has been classified by a bank or financial institution as sub-standard, doubtful or loss asset, in accordance with the directions or guidelines relating to asset classification issued by the Reserve Bank.

Non-performing loans

Non-performing loans are loans that are in default or close to being in default. Many loans become non-performing after being in default for 3 months, but this can depend on the contract terms.

Output budgeting

Process linking budgetary appropriations to specific outputs, more or less detailed, depending on administrative capacity and the sector in question. Permits explicit contracts between the political leadership (as “principal”) and the public managers (as “agents”). When highly aggregated, output budgeting becomes similar to “performance budgeting/programme budgeting”. When detailed, contracting is more feasible, but the administrative and other costs of the system can be very high and may result in a loss of financial control and lower quality of services.

Payment system

A payment system is the procedures and associated computer networks used to settle financial transactions in bond markets, currency markets, and futures, derivatives and options markets, and to transfer funds between financial institutions. Due to the backing of modern fiat currencies with government bonds, payment systems are a core part of modern currency systems.

Performance audit

Performance audit (value for money audit) comprising:

·   Audit of the economy of administrative activities in accordance with sound administrative principles and practices, and management policies.

·   Audit of the efficiency of utilisation of human, financial and other resources, including examination of information systems, performance measures and monitoring arrangements, and procedures followed by audited entities for remedying identified deficiencies.

·   Audit of the effectiveness of performance in relation to the achievement of the objectives of the audited entity, and audit of the actual impact of activities compared with the intended impact.

Performance budgeting (or programme budgeting)

Performance budgeting consists of classifying government transactions into functions and programmes in relation to the government’s policy goals and objectives; establishing performance indicators for each programme or activity; and measuring the costs of these activities and the outputs delivered. The terms “performance budgeting” and “programme budgeting” are often used interchangeably, but programme budgeting can also be defined as a form of performance budgeting giving greater emphasis to the classification of programmes according to the government’s policy objectives and the needs of efficient resource allocation. Variants of performance budgeting have been attempted over the years, aimed at replacing the traditional line-item budget as the main instrument for allocation of resources. A full system of performance budgeting is difficult to realise, in large part because of the high information requirements and complex management systems that are needed. In a number of countries, therefore, the terms “programme budgeting” or “performance budgeting” refer merely to the introduction into the budget of some outcome indicators, narrative statements, and or a program classification of expenditures that fit existing administrative arrangements, and are directly linked to budgetary appropriations.


Planning is the (psychological) process of creating and refining a plan, or integrating it with other plans. The term is also used to describe the formal procedures used in such an endeavour, such as the creation of documents, diagrams, or meetings to discuss the important issues to be addressed, the objectives to be met, and the strategy to be followed. Beyond this, planning has a different meaning depending on the political or economic context in which it is used.

In public policy, planning refers to the practice and profession associated with land use planning, urban planning or spatial planning. In many countries, the operation of town and country planning system is often referred to as “planning” and the professionals which operate the system are known as “planners”. It is a process which is decided in advance what is to be done in the coming future.

In organizations, planning is also a management function, concerned with defining goals for future organizational performance and deciding on the tasks and resources to be used in order to attain those goals. To meet the goals, managers may develop plans such as a business plan or a marketing plan.


In finance, a portfolio is a collection of investments held by an institution or a private individual. Holding a portfolio is often part of an investment and risk-limiting strategy called diversification. By owning several assets, certain types of risk (in particular specific risk) can be reduced. There are also portfolios which are aimed at taking high risks - these are called concentrated portfolios.


In strategic management and marketing, a portfolio is a collection of products, projects, services, or brands that are offered for sale by a company. Typically a company tries to achieve both diversification and balance in their portfolio of product offerings.


In politics and government, a portfolio is the post and the responsibilities of a cabinet minister or other head of a government department.

Portfolio strategy approach

A corporate-level strategy approach that involves analyzing an organization’s mix of businesses in terms of both individual and collective contributions to strategic goals. 

Positive reinforcement

A type of reinforcement in behavior modification, aimed at increasing a desired behavior, that involves providing a pleasant, rewarding consequence to encourage that behavior.

Positive synergy

The force that results when the combined gains from group interaction are greater than group process losses.


Privatization (alternately "denationalization" or "disinvestment") is the transfer of property or responsibility from the public sector (government) to the private sector (business). The term can refer to partial or complete transfer of any property or responsibility held by government. A similar transfer in the opposite direction could be referred to the nationalization or municipalization of some property or responsibility.


Procurement is the acquisition of goods or services at the best possible total cost of ownership, in the right quantity and quality, at the right time, in the right place for the direct benefit or use of governments, corporations, or individuals generally via, a contract.

Productive efficiency

Productive efficiency is when the economy is working on its production possibility frontier (PPF). This is when production is achieved at the lowest cost possible, and is when average cost is at the lowest point on the average cost curve. Graphically this is where the price is at the minimum point of the average total cost curve. Productive efficiency can be defined as “using the least amount of resources to produce a given good or service or output is being produced at the lowest possible unit cost”.


An efficiency concept that gauges the ratio of outputs relative to inputs into a productive process.

Profit budget

An operating budget that focuses on the profit to be derived from the difference between anticipated revenues and expenses.


Project is a single, non-divisible activity with a fixed time schedule, a dedicated budget and clearly defined objectives and outputs.


Protocol is a set of conventions that determine the treatment, exchange and formatting of data in an electronic communications system. It is also similar to a data standard but applied to procedures.

Public debt

Public debt is the external obligations of the government and public sector agencies.

Public expenditure management

Public expenditure management: the way in which public money is allocated to alternative uses and in which these decisions are implemented. It is broader than the traditional budget process through its focus on the link between expenditure and policy and its recognition of the importance of a broad range of institutional and management arrangements.

Public finance (government finance)

Public finance (government finance) is the field of economics that deals with budgeting the revenues and expenditures of a public sector entity, usually government. Governments, like any other legal entity, can take out loans, issue bonds and invest. Based on the taxing authority of the entity, they issue bonds such as tax increment bonds or revenue bonds. A bond issued by a public sector entity may give tax advantages to its owners.

Public policy

Public policy is a course of action or inaction chosen by public authorities to address a problem. Public policy is expressed in the body of laws, regulations, decisions and actions of government. Policy analysis may be used to formulate public policy and to evaluate its effectiveness.

Public sector

The public sector comprises the general government sector plus all public corporations including the central bank.

Public-choice theory

Public-choice theory is the use of modern economic tools to study problems that are traditionally in the province of political science. (A more general term is “political economy”, an earlier name for “'economics” that evokes its practical and theoretical origins but should not be mistaken for the Marxian use of the same term.) In particular, it studies the behavior of voters, politicians, and government officials as (mostly) self-interested agents and their interactions in the social system either as such or under alternative constitutional rules. These can be represented a number of ways, including standard constrained utility maximization, game theory, or decision theory. Public choice analysis has roots in positive analysis (“what is”) but is often used for normative purposes (“what ought to be”), to identify a problem or suggest how a system could be improved by changes in constitutional rules. A key formulation of public choice theory is in terms of rational choice, the agent-based proportioning of scarce means to given ends. An overlapping formulation with a different focus is positive political theory. Another related field is social choice theory.

Public-private partnership

Public-private partnership (PPP) is a system in which a government service or private business venture is funded and operated through a partnership of government and one or more private sector companies. These schemes are sometimes referred to as PPP or P3. In some types of PPP, the government uses tax revenue to provide capital for investment, with operations run jointly with the private sector or under contract. In other types (notably the Private Finance Initiative), capital investment is made by the private sector on the strength of a contract with government to provide agreed services. Government contributions to a PPP may also be in kind (notably the transfer of existing assets).

Ratchet effect

The ratchet effect the commonly observed phenomenon that some processes cannot go backwards once certain things have happened, by analogy with the mechanical ratchet that holds the spring tight as a clock is wound up.

The ratchet effect is referred to in many disciplines, from politics to management to evolutionary theory. In terms of politics, the "ratchet effect" was used to describe the government's inability to scale back the huge bureaucratic organizations that were once needed. Often, these machines were created in times of war to fuel the needs of their troops abroad. The "ratchet effect" can also be viewed through the lens of international organizations that have trouble with reforms due to the myriad layers of bureaucracy that were previously created.

The ratchet effect is also used as a term for the results of an economic strategy arising in an environment where incentive depends on both current and past production, such as in a competitive industry employing piece rates. The producers observe that since incentive is readjusted based on their production, any increase in production confers only a temporary increase in incentive while requiring a permanent greater expenditure of work, and thus decide not to reveal hidden production capacity unless forced to do so.


Rationalization in psychology is the process of constructing a logical justification for a decision that was originally arrived at through a different mental process. Rationalization in economics is an attempt to change a pre-existing ad-hoc workflow into one that is based on a set of published rules. Rationalization in sociology is the means of transition from a traditional society into a rationalized one. Rationalization in politics is justification of power by means of rationality (rationality and power).


Rationalization in organization is the strategy of assigning activities to those parts of the organization, regardless of their location, that are best suited to produce the desired results and then selling the finished products where they are likely to yield the best profits. 

Rationalization agreement

A rationalization agreement is an agreement (generally approved or authorized by government) between firms in an industry to close down inefficient plants, reduce excess capacity and realign production in order to increase overall industry efficiency and performance.

Redistribution of wealth

Redistribution of wealth (see income redistribution)

Regulatory framework

A regulation is a legal restriction promulgated by government administrative agencies through rulemaking supported by a threat of sanction or a fine. This administrative law or regulatory law is in contrast to statutory or case law. Regulation mandated by the government or state attempts to produce outcomes which might not otherwise occur, produce or prevent outcomes in different places to what might otherwise occur, or produce or prevent outcomes in different timescales than would otherwise occur. Common examples of regulation include attempts to control market entries, prices, wages, pollution effects, employment for certain people in certain industries, standards of production for certain goods and services. The economics of imposing or removing regulations relating to markets is analysed in regulatory economics.

Resource allocation

In strategic planning, a resource allocation decision is a plan for using available resources, for example human resources, especially in the near term, to achieve goals for the future. It is the process of allocating resources among the various projects or business units.

The plan has two parts:. Firstly, there is the basic allocation decision and secondly there are contingency mechanisms. The basic allocation decision is the choice of which items to fund in the plan, and what level of funding it should receive, and which to leave unfunded: the resources are allocated to some items, not to others.

There are two contingency mechanisms. There is a priority ranking of items excluded from the plan, showing which items to fund if more resources should become available; and there is a priority ranking of some items included in the plan, showing which items should be sacrificed if total funding must be reduced.

Resource dependence

An approach to controls that argues that managers need to consider controls mainly in areas in which they depend on others for resources necessary to reach organizational goals.

Resource dependence model

A view of the organization-environment interface that highlights organizational dependence on the environment for resources and argues that organizations attemp to manipulate the environment to reduce that dependence.

Results-based management (RBM)

Results-based management (RBM) is a participatory and - ideally - team-based approach to management designed to improve programme and management effectiveness, efficiency and accountability that focuses on achieving defined results.


Retrenchment means the reduction of expenditures in order to become financially stable (e.g., by cutting jobs). It is a tactical concept similar to downsizing. This strategy is often used by corporations under pressure to raise profits, or who are failing in certain sectors and wish to concentrate in higher-gain areas. Retrenchment of the state, accompanied by lowering taxes, is frequently advocated by capitalist, neo-liberal, and libertarian groups.


Revenues (or total revenue) refer to the value of output sold, that is the number of units times the price per unit. Average revenue is revenue per unit that is total revenue divided by the amount of output sold. Average revenue is therefore equal to price per unit. Marginal revenue is the increment in total revenue resulting from the sale of an additional unit. The term "revenue" is often used interchangeably with "sales" and "turnover".

Risk analysis/assessment

A systematic process for assessing and integrating judgments about possible adverse conditions and/or events, as a basis for the appropriate budgetary treatment of those conditions or events. Examples include the risk of war, bank failures, floods and other natural disasters, epidemics of virulent disease, etc. See also contingent liability.

Risk management

Risk management is the process of evaluating alternative regulatory and non-regulatory responses to risk and selecting among them. The selection process necessarily requires the consideration of legal, economic and social factors.


Sanctions is the plural of sanction. Depending on context, a sanction can be either a punishment or a permission.


Sanctions involving countries:

·   International sanctions, punitive measures adopted by a country or group of countries against another nation for political reasons

-      Diplomatic sanctions, the reduction or removal of diplomatic ties, such as embassies.

-      Economic sanctions, typically a ban on trade, possibly limited to certain sectors such as armaments, or with certain exceptions (such as food and medicine).

-      Military sanctions, military intervention.

·   Trade sanctions, economic sanctions applied for non-political reasons, typically as part of a trade dispute, or for purely economic reasons, and typically involving tariffs or similar measures, rather than bans.


Other meanings:

·   In a legal context, sanctions are penalties imposed by the courts.

·   In a sociology context, sanction may refer to social control.

Sinking fund

Payments made by the borrower on a regular basis to a special account to set aside the necessary funds for the redemption of its long-term debt.

Social insurance schemes and social security schemes

Social insurance schemes are schemes in which social contributions are paid by employees or others, or by employers on behalf of their employees, in order to secure entitlement to social insurance benefits, in the current or subsequent periods, for the employees or other contributors, their dependants or survivors.


Social security schemes 

Social security schemes are schemes imposed and controlled by government units for the purpose of providing social benefits to members of the community as a whole, or of particular sections of the community.

Social loafing

The tendency of individuals to expand less effort when working in groups than when working alone.

Social protection

Social protection refers to a set of benefits available (or not available) from the state, market, civil society and households, or through a combination of these agencies, to the individual/households to reduce multi-dimensional deprivation. This multi-dimensional deprivation could be affecting less active poor persons (e.g., the elderly, disabled) and active poor persons (e.g., unemployed). This broad framework makes this concept more acceptable in developing countries than the concept of social security. Social security is more applicable in the conditions, where large number of citizens depends on the formal economy for their livelihood. Through a defined contribution, this social security may be managed. But, in the context of wide spread informal economy, formal social security arrangements are almost absent for the vast majority of the working population. Besides, in developing countries, the state's capacity to reach the vast majority of the poor people may be limited because of its limited resources. In such a context, multiple agencies that could provide for social protection is important for policy consideration. The framework of social protection is thus capable of holding the state responsible to provide for the poorest sections by regulating non-state agencies.

Social safety net

The social safety net is a term used to describe a collection of services provided by the state (such as welfare, unemployment benefit, universal healthcare, homeless shelters, and perhaps various subsidized services such as transit), which prevent any individual from falling into poverty beyond a certain level.

Social scanning

The general surveillance of various elements in the task environment to detect evidence of impending changes that will affect the organization’s social responsibilities.

Social security funds

Social security funds are funds that provide social benefits to the community through a social insurance scheme which generally involves compulsory contributions by participants. In most countries, such funds are separately organised from the other government activities, have their own budget, and hold their assets and liabilities separately. Social security systems which do not hold their assets and liabilities separately are not called social security funds. In the GFS, the preferred treatment of social security funds is to classify them as a part of the level of government at which they operate. An alternative treatment is to group all social security funds into a separate subsector. Funded government/employee pension plans are not social security funds. They are financial corporations and are excluded from the general government sector.

Social services

Social (and collective) services provide final consumption for households and are distinctive for their non-market character in most OECD countries. Collective consumption decisions and public financing are common, as is production by governments, non-profit organisations and subsidised private organisations. 


Social services comprise the following International Standard Industrial Classification (ISIC) Rev. 3 sub-groups:

·   government proper (civil or military);

·   educational services; and 

·   miscellaneous social services.

Social welfare provision

A social welfare provision refers to any government program which seeks to provide a minimum level of income, service or other support for disadvantaged peoples such as the poor, elderly, disabled, students and minority groups. Social welfare payments and services are typically provided free of charge or at a nominal fee, and are funded by the state, or by compulsory enrollment of the poor themselves.

Social Wellbeing

Social wellbeing refers to a preferred set of social arrangements based on Dignity and self determination, participation and belonging, development of potential, fair distribution of wealth and resources, and tolerance and respect for cultural diversity.

Socialist economy

An economy in which the means of production are owned by the state and economic activity is coordinated by plan.

Spending unit

Any government entity that is responsible for its own budgetary operations. In many countries, these units are denominated in terms of several hierarchical levels (first level spending unit, second level spending unit, etc.) with the first level corresponding to a ministry or other organisation headed by a person of ministerial rank. In addition to ministries, such units may include subordinated and autonomous agencies, extra-budgetary funds, or administrative units within entities that (exceptionally) deal directly with the ministry of finance on budget matters.

Sub-national government

Sub-national government is governmental units that exist exercise a competence independently of the central government in a part of a country's territory encompassing a number of smaller localities. These include all governmental elements at the-regional level embraced by the generic term “government”, and may include, depending on the country, state or provincial government, district, country, etc., as well as local government.  Sub-national government includes also decentralized agencies and social security funds operating at the regional level, and pension funds of regional government employees whose assets are invested entirely with the employer government.


The subsidiarity principle requires that decisions be taken at the lowest practicable level of government. It implies that central government should not take action unless doing so is more effective than action taken at regional or local government level. The term is commonly used in the European Union to define the areas where Member States have an independent right of action, i.e. where the acquis communautaire does not apply (e.g. the timetable for preparing the annual budget and submitting it to parliament is a matter of subsidiarity).


According to the Government Finance Statistics (GFS) and the System of National Accounts (SNA), the term “subsidy” is narrowly defined as current, unrequited transfers that the government makes to enterprises either on the basis of the levels of their production activities or on the basis of the quantities or values of the goods and services that they produce. More broadly, the term “subsidy is also often used to in the sense of payments or tax credits to individuals on the basis of their personal circumstances, according to criteria laid down in law or regulations (e.g. if they are unemployed or disabled).


In education, subsidy is a grant paid by a government to an enterprise that benefits the public; such as "a subsidy for research in artificial intelligence".


Subvention is the provision of help, aid, or support. It is also an endowment or a subsidy, as that given by a government to an institution for research; a grant of financial aid.

Sunk costs

Costs that, once incurred, are not recoverable and should not enter into considerations of future courses of action.

Supplementary appropriation

Supplementary appropriation is a legislation passed during the budget year to provide for expenditures additional to the original budget.


Supranationalism is a method of decision-making in international organizations, wherein power is held by independent appointed officials or by representatives elected by the legislatures or people of the member states. Member-state governments still have power, but they must share this power with other actors. Because decisions are made by majority votes, it is possible for a member-state to be forced by the other member-states to implement a decision. However, unlike a federal state, member states fully retain their sovereignty and participate voluntarily, being subject to the supranational government only so far as they decide to remain members. 


An alternative method of decision-making in international organisations is intergovernmentalism. 


No international organizations operate on the basis of supranationalism in the strict sense; however the European Union and the South American Community of Nations, often called supranational unions, as they incorporate both intergovernmental and supranational elements. Some degree of supranationalism may exist in some International organizations. Supporters of a Federal World Government wish it to be extended. The United Nations holds a limited degree of supranational power insofar as governing important matters of global security through the binding decisions of the Security Council.

Theory of second best

The theory of the second best suggests that when two or more markets are not perfectly competitive, then efforts to correct only one of the distortions may in fact drive the economy further away from Pareto efficiency.

Third- party intervention

A technique concerned with helping individuals, groups, or departments resolve serious conflicts that may relate to specific work issues or may be caused by suboptimal interpersonal relations.

Third party payment

Third party payment is the practice of an insurer paying providers directly for services rendered to an insured, as opposed to an indemnity contract which pays the insured person for the losses incurred.

Token provision

A token is something serving as an indication, proof, or expression of something else; token provision is a done as an indication or a pledge.

Top-down budgeting

A process of developing budgets in which top management outlines the overall figures and middle and lower-level mangers plan accordingly.


Transfer is a transaction in which one individual or institutional unit provides a good, service or asset to another individual or unit without receiving from the latter any good, service or asset in return as a counterpart. Transfers may be made in cash or in kind.

Transfer payment

In political science and economics, a transfer payment is a payment of money from a government to an individual for which no good or service is required in return. In economics, government transfer payments can be considered a negative tax, since in the case of a tax, people pay the government without getting any good or service in direct exchange. 


Examples of transfer payments include welfare, unemployment insurance, social security payments publicly-funded pensions and public support for students, including scholarships and financial aid and death benefits for parents (el parentos).

Transition Economy

Transition economy is an economy which is changing from a planned economy to a free market. Transition economies undergo economic liberalization, letting market forces set prices and lowering trade barriers, macroeconomic stabilization, where immediate high inflation is brought under control, and restructuring and privatization, in order to create a financial sector and move from public to private ownership of resources. These changes often may lead to increased inequality of incomes and wealth, dramatic inflation and a fall of GDP. 


Transition process is usually characterised by the changing and creating of institutions, particularly private enterprises; changes in the role of the state, thereby, the creation of fundamentally different governmental institutions; and the promotion of private-owned enterprises, markets and independent financial institutions.


Transparency refers to an environment in which the objectives of policy, its legal, institutional, and economic framework, policy decisions and their rationale, data and information related to monetary and financial policies, and the terms of agencies’ accountability, are provided to the public in a comprehensible, accessible, and timely manner.


Transparency of fiscal and financial information is a must for an informed executive, legislature, and the public at large (normally through the filter of competent legislative staff and capable public media). It is essential not only that information be provided, but that it be relevant and in understandable form. Dumping on the public immense amounts of raw budgetary material does nothing to improve fiscal transparency. The IMF has assembled in 1998 a Code of Good Practices on Fiscal Transparency, which underlines the importance of clarity of fiscal roles and responsibilities; public availability of information; open processes of budget preparation, execution, and reporting; and independent reviews and assurance of the integrity of fiscal forecasts, information, and accounts.


Transparency is one of the characteristics of a robust public expenditure management (PEM) system. A transparent PEM system provides an understandable guide as to how resources are planned to be used and what results are expected to be achieved. Reporting should also enable easy monitoring of performance against government’s stated intentions.


A treasury is any place where currency or items of high monetary value are kept.

Trust funds

Trust funds are property, especially money and securities, held or settled in trust. In common law legal systems, a trust is a relationship in which a person or entity (the trustee) holds legal title to certain property (the trust property or trust corpus), but is bound by a fiduciary duty to exercise that legal control for the benefit of one or more individuals or organizations (the beneficiary), who hold "beneficial" or "equitable" title. The trust is governed by the terms of the (usually) written trust agreement and local law. The entity (one or more individuals, a partnership, or a corporation) that creates the trust is called the settlor, and in the United States, the trustor, grantor, donor, or creator, as well.


Under-funding occurs when the value of a plan’s assets is less than its liabilities, thereby having an actuarial deficiency.

Unit of analysis

The unit of analysis is the major entity that is being analyzed in the study. It is the ‘what’ or ‘whom’ that is being studied. In social science research, the most typical units of analysis are individual people. Other units of analysis can be groups, social organizations and social artifacts.

Unitary authority (unitary government)

A unitary authority or government is a type of local authority that has a single tier and is responsible for all local government functions within its area. This is opposed to a two-tier system where local government functions are divided between different authorities. Typically unitary authorities cover large towns or cities, which are large enough to be independent of county or regional administration. Sometimes they consist of counties which have no lower level of administration.

Value system

A value system refers to how an individual or a group of individuals organize their ethical or ideological values. A well-defined value system is a moral code. Still, one or more people can hold a value system. Likewise, a value system can apply to either one person or many. A personal value system is held by and applied to one individual only, while a communal value system is held by and applied to a community/group/society. Some communal value systems can take the form of legal codes or law. Fred Wenstøp and Arild Myrmel have proposed a structure for corporate value systems that consists of three value categories. These are considered complementary and juxtaposed on the same level if illustrated graphically on for instance an organization’s web page. The first value category is Core Values, which prescribe the attitude and character of an organization, and are often found in sections on Code of conduct on its web page. The philosophical antecedents of these values are Virtue ethics, which is often attributed to Aristotle. Protected Values are protected through rules, standards and certifications. They are often concerned with areas such as health, environment and safety. The third category, Created Values, is the values that stakeholders, including the shareholders expect in return for their contributions to the firm. These values are subject to trade-off by decision-makers or bargaining processes. 

Voluntary retirement

Voluntary retirement is the act of retiring, the state of being retired, and withdrawal from one’s occupation, business, or office voluntarily. In some countries, the government and/or public institutions encourages voluntary retirement through a specially designed scheme to reward those who take the option.


Welfare is the the good fortune, health, happiness, prosperity, etc., of a person, group, or organization; well-being, quality of life. Types of welfare include:

·   Welfare (financial aid), financial assistance paid by the government 

·   Welfare economics, in economics, associated with material benefit or preferred outcomes; see also social welfare function 

·   Social welfare, in social policy, refers to income redistribution to provide a range of services intended to meet people's needs

Welfare Economics

Welfare economics is a branch of economics that uses microeconomic techniques to simultaneously determine the allocational efficiency of a macroeconomy and the income distribution associated with it. It attempts to maximize the level of social welfare by examining the economic activities of the individuals that comprise society.  


Welfare economics is concerned with the welfare of individuals, as opposed to groups, communities, or societies because it assumes that the individual is the basic unit of measurement. It also assumes that individuals are the best judges of their own welfare that people prefer greater welfare to less welfare, and that welfare can be adequately measured either in monetary terms or as a relative preference.

Welfare state

There are three main interpretations of the idea of a welfare state:

·     the provision of welfare services by the state.

·     an ideal model in which the state assumes primary responsibility for the welfare of its citizens. This responsibility is comprehensive, because all aspects of welfare are considered; a "safety net" is not enough, nor are minimum standard. It is universal, because it covers every person as a matter of right.  

·     the provision of welfare in society. In many “welfare states”, especially in continental Europe, welfare is not actually provided by the state, but by a combination of independent, voluntary, mutuality and government services. The functional provider of benefits and services may be a central or state government, a state-sponsored company or agency, a private corporation, a charity or another form of non-profit organisation.


The well-being or quality of life of a population is an important concern in economics and political science. There are many components to well-being. A large part is standard of living, the amount of money and access to goods and services that a person has; these numbers are fairly easily measured. Others like freedom, happiness, art, environmental health, and innovation are far harder to measure. This has created an inevitable imbalance as programs and policies are created to fit the easily available economic numbers while ignoring the other measures that are very difficult to plan for or assess.

Zero-based budgeting (ZBB)

A budget approach in which responsibility centers start with zero in preparing their budget requests and must justify the contributions of each of their activities to organizational goals.


A quality mentality that the total quality control approach attempts to achieve in which the work force strives to make a product or service conform exactly to desired standards.