Abstract
Public financial management (PFM) is a cornerstone of effective government and public service. Earlier publications tend to fixate on specific areas of PFM that, while important areas of research, have fragmented current PFM topics. The Research Handbook on PFM aims to alleviate the existing fragmentation and establish an all-encompassing literature for practitioners, researchers, policymakers, scholars, and students to benefit from. The Handbook contains eight parts subdivided into 22 detailed chapters. The topics of these chapters include a combination of foundational concepts and theories, emerging research and their implications for current PFM practices, the drawbacks of new practices or research, and future directions for research in PFM. The exceptional insights this Handbook provides from experienced academic authors prove invaluable to anyone interested in the field of PFM, whether they are lifelong practitioners or students just beginning their academic careers.
Five core themes are repeated throughout the Handbook: Globalization, digitalization of PFM, public–private sector relationships, inter- and intra-governmental systems, and fostering long-term innovation in PFM. These themes are repeated throughout the Handbook with some chapters covering multiple themes within them. This book review will aim to map out the many chapters of this Handbook according to theme. However, this short list of themes should not be taken as final since there are other themes prevalent that may be of value to readers of particular backgrounds.
Globalization has become a hallmark of the 21st century as a result of the internet and modern technology that allows for deeply connected international relationships. The Handbook brings globalization to the intersection of PFM as trends associated with globalization can only be expected to accelerate as international systems continue to grow. Chapter 2 introduces the theme of globalization in PFM, which is echoed throughout the Handbook. It explores the various fiscal and monetary strategies deployed by governments across the world to alleviate the economic burdens that resulted from the COVID-19 pandemic shutdown. It also demonstrates how the pandemic provided a unique opportunity to research how different economic relief strategies would affect the long-term sustainability of the governments that used them. Chapter 17 follows along a similar line as it looks at the debt ratios of countries that ballooned during the COVID-19 pandemic. It brings up important questions regarding debt sustainability and the long-term effects of pandemic economic policies to which governments must be receptive or risk more shocks to the international economy if economic systems fail. Chapter 5 takes a globalization perspective on accounting, showing that trends in United States PFM are reciprocated on an international scale. Shifts toward accrual accounting and budgeting from cash are slowly progressing thanks in part to international accounting standard institutions such as the International Public Sector Accounting Standards (IPSAS), among others. However, these shifts are occurring on a spectrum with the speed and scale of adoption varying by country. Chapter 8 brings budgeting to the international scene to examine how other countries, notably developed countries, and lesser-developed countries, compare in terms of budgeting practices. It finds that the types of budgeting countries utilize and the paths by which they evolve result from regional factors with less developed countries having less transparency in budgeting compared to developed ones. The globalization of PFM has also allowed for the participatory budgeting practice first tested in South America to spread internationally.
Governments must keep up with the advancements in technology if they want to perform their duties in the most efficient and effective manner, and PFM is no exception. The Handbook ensures that discussions and findings regarding the influence digitalization has on PFM are thoroughly discussed. Chapter 3 dives into the wide range of applications fintech will have on PFM. Fintech allows for a multitude of PFM practices to be accomplished more effectively and efficiently, such as treasury payments, non-tax revenue collections, public debt management, and investment. Box 3.3 shows that improving tax revenue collections is also possible through improved tax collection compliance, as seen in Senegal. The digitalization of tax administration is further discussed in Chapter 11, where technological advances allow for more efficient collections, greater compliance, and improved equity. However, changing tax administration to be respondent to those changes, is no easy task. This chapter looks at different countries as a way to identify what the best practices may be when dealing with tax reform. In the end, there must be sociopolitical agreement on the need for reform, and any attempts at reform need to be thought through, simple in their design, and apply the three approaches to tax compliance equally. Chapter 7 provides some of the most compelling information found in the Handbook, with a focus on digitalization and the citizen. As technology advances and smart cities become more of a reality, governments can expect the role they play to change considerably. Citizens will find themselves as subscribers to public services rather than customers capable, as a community, of signing up for more or less of a service such as an ambulance, public safety, and transportation. Budget offices across municipalities will also be responsible for more work since they would need to actively monitor subscriptions and their impact on the budgeting process. The Handbook cautions that this method of government raises concerns over equity and preserving the public interest at the community level.
The public and private sectors are different in name and by their core objectives, with the private sector prioritizing profits respondent to shareholders while the public sector balances numerous objectives in the name of the public good respondent to the citizenry. Despite these differences by definition, the Handbook does an excellent job of mapping out how these two distinct areas are very similar and how the practices of the private sector continue to influence the public sector in the name of efficiency. Chapter 1 establishes that both sectors tend to have similar means of accomplishing their objectives, especially with financial management practices, and that they tend to do so in tandem with each other. The chapter also discusses financial engineering, or synthetic finance, which allows public and private financial actors to break free from traditional budget constraints to expand financial resources and allocation. You are introduced to the idea of new public management (NPM) in Chapter 4, and how it transfers financial practices from the private sector to the public sector. Changes from cash to accrual accounting, input, and process management to results-based and improved accurate costing highlight just a few changes that NPM inspired. The Handbook expands upon existing research by associating these changes with theories such as neoliberalism, agency theory, public choice theory, property rights theory, and transaction cost economics. Chapter 18 goes in-depth on contract procurement and management, which is a key change associated with NPM. Contracting in PFM has allowed for greater efficiency and cost-effectiveness in providing services to the public and has been increasingly used in recent years. There are also concerns with larger-scale contracting, namely that the government could become a “hollow state” and that local governments have lower capacities to get ideal contracting outcomes.
PFM is an incredibly complex and interconnected subject ranging in scale from small municipal governments to large national governments. Intergovernmental systems and relations are a major part of PFM and this Handbook. Intergovernmental systems play a key role in determining the tax policies outlined in Chapter 10. Tax policies can be evaluated from five different criteria including economic efficiency, equality, adequacy, and feasibility. The example regarding taxes on cannabis toward the end of the chapter provides a good understanding of how the tradeoffs between these criteria work. Multiple levels of government, from small municipalities to the federal government, play a key role in tax policy, making intergovernmental cooperation critical. This chapter is complemented by Chapter 12, which looks at the different tax instruments used by experts to establish tax policy approaches. While the chapter is largely technical in its explanation of tax forecasting and prediction tools, it does caution PFM policy-makers that because something is good does not mean improving it will generate additional good. Public expenditures present an intra-governmental challenge for all municipalities, as expressed in Chapter 13. Expenditures are critical to governmental services and require careful balancing of debt and tax collection to be sufficient. However, competing objectives within governments, such as agenda items or other priorities, force opportunity costs to be considered to stay within public expenditure limits. Chapter 15 engages subnational debt issuance by drawing comparisons between the decentralized approach of the United States to other approaches globally. While the benefits of a decentralized approach exist, there are also concerns regarding credit market allocation and how local revenue sources tie into sovereign credit ratings. The Handbook proposes solutions that would strengthen the intergovernmental system in place such as greater federal regulations and oversight of the financial sector and more fiscal regulations enforced through democracy. Chapter 16 expands upon the topic by identifying the risks to municipal bonds, such as liquidity concerns due to the information asymmetry among investors and the need for dealer partnership and credit ratings. Credit ratings are fragmented across state lines which poses intergovernmental concerns regarding information asymmetry to bond issuers. Chapter 21 covers climate-resilient infrastructure, which creates a need for intergovernmental cooperation at an inflection point of climate change. The Handbook outlines the different means to finance climate-resilient infrastructure, such as self-imposed taxes or fees. However, intergovernmental efforts between the federal government and municipalities are necessary to make meaningful progress toward these climate goals, as municipalities will need help to finance and fund climate infrastructure.
The Handbook places a great emphasis on fostering long-term innovation in PFM. Multiple chapters of this Handbook are dedicated to analyzing where current literature on a topic is abundant and where future research efforts should be aimed toward maximizing the long-term sustainability of PFM. Individuals looking to research governmental accounting should look toward Chapter 6 as it identifies major themes of governmental accounting and existing research directions. The Handbook encourages researchers to complete future studies with a theory-driven or policy-driven approach to create a more structured pool of research on financial reporting practices and adoption. Chapter 9 focuses on budgeting and recognizes the importance of budgeting as an interdisciplinary research category between political science, economics, and public administration. The author identifies multiple paths for future research, including fiscal sustainability, exogenous shocks to budgeting, equity in budgeting, and the political relationships between budgetary actors, all while emphasizing a need for a broad perspective. Chapter 14 calls for improved research methods to improve statistical outcomes in public expenditure studies. Future research should look into theories such as social incrementalism, public choice, and punctuated equilibrium theory. Additionally, the Handbook identifies topics of interest, including healthcare, infrastructure, pensions, globalization, equity, and climate change, to name a few. Chapter 19 expressed a need for additional research in government contracting and procurement. It identified four areas for additional research to improve contractual outcomes: Strategic procurement and contract design, solicitations and discretion, contract management, and performance measurement. Perhaps one of the most interesting areas of this Handbook is found in Chapter 20, which discusses the influence human behavior has on economics and finance. It may seem unrelated to the field of PFM, but human behavior is critical to understanding fiscal processes and how some theories do or do not work. Future research looks to expand the study of human behavior as it applies to municipal bonds, municipal fiscal health, and tax behavior.
The Research Handbook on PFM is directed toward a wide audience of practitioners, academics, policymakers, professors, and students who can all benefit greatly from the information contained. Practitioners will find plenty of helpful sections within this Handbook to improve their knowledge of best practices such as government contracting, tax forecasting, climate-resilient infrastructure, and emerging issues with municipal bonds. I want to also highlight all the chapters associated with digitalization for as technology continues to evolve, especially with the advent of artificial intelligence, practitioners must stay ahead of the curve to reap the benefits of digitalization for their governments. Academics of PFM can look into sections of the Handbook that fall under the theme of fostering long-term innovation and research. These chapters feature detailed reviews of existing literature that allow researchers to quickly identify areas for future studies across a wide range of PFM topics. The Handbook is also ripe with information that policymakers can benefit from, especially Chapters 10 and 11, with their focus on tax policy, and Chapter 15, which calls for intergovernmental financial regulation. Additionally, policymakers may find information relating to future research of value since it can keep them informed as to which directions the landscape of PFM will expand next. Students and professors, despite being a secondary audience for this publication, are likely to benefit just as much from its detailed chapters. Chapter 23 caters to this audience as it shows professors of PFM the discrepancies in budgeting courses taught to MPA students. To alleviate this challenge, it provides a structured framework for faculty to follow which includes topics such as public budgeting, financial management, and public finance, to standardize budgeting courses across the nation. Students will benefit greatly from this as it will allow faculty to create courses that balance the large pool of information necessary to understand PFM and the digestibility of material such that students will be able to understand PFM in the long term.
The immense amount of information and knowledge the Research Handbook on PFM contains cannot be understated. While I have attempted to compile an overview of the Handbook, it still does not give proper credit to the amount of information in this publication. Each of its chapters confronts an original aspect of PFM that other portions of the Handbook do not. However, the chapters are arranged in such a way that their unique puzzle-like properties can be put together to showcase the larger picture that is PFM. The themes of globalization, digitalization, public–private sector relationships, inter- and intra-governmental systems, and future research in PFM that are persistent throughout the Handbook will help readers understand and craft original thoughts and ideas surrounding the material. As a result, the authors of this Handbook were successful in establishing a comprehensive framework upon which practitioners and academics can continue to research, analyze, and apply the concepts this Handbook puts forward.