The number of budget expenditure categories reported per country observation varies from a low of 9 to a high of 23, with the majority having 20 categories plus a 21rst containing “all other” budget categories. The total number of budget categories in the database is 3,069. In a few cases, these categories are either exact or close matches to the functional (sector) categories described in the IMF (2001b) Government Financial Statistics Manual. In most cases, however, these categories are actually ministry “budget heads” that may combine several sectors. This distinction is worth noting because the impact of ministerial accountability on performance can be observed more directly when the spending data refer to ministries rather than functional groups that reflect the combined decisions of more than one minister.<sup>10</sup> On the other hand, some of the political economy literature is more oriented around economic categories such as recurrent versus project spending.<sup>11</sup> In some cases, pensions are given a single budget line rather than being distributed across ministries or sectors. The data do not, at present, allow one to differentiate between statutory and discretionary spending nor between recurrent and capital spending.<sup>12</sup> (Many governments use a development budget that contains both recurrent and capital expenditures with the latter financed mainly by external donors.)

# _A. Budgetary Deviations in Levels_

Before looking at the data, it is helpful to set up a simple algebraic framework to put aggregate deviations in context. Define the portion of budgetary expenditures (E) under the direct control of the government as primary expenditures less spending financed from external project support. The counterparts to E, as set out in equation 1 below, are revenues (R), net borrowing less external project support (B), and interest (I).<sup>13</sup> Equation 1 is simply the government’s budget constraint with external project support subtracted from both sides of the equation.

(1) E = R + B – I This budget constraint can be rewritten as: (2) E = R + NF = TNR where NF refers to net financing and TNR refers to total net resources. This can be re-written again in terms of the percentage budgetary deviations where subscripts _a_ and _b_ refer to actual outcomes versus budgetary targets. This will be helpful when comparing compositional deviations across countries indexed by _i_ with different sizes of budgets and with different currencies.

(3) (E _a,i_ – E _b,i_ )/E _b,i_ = (R _a,i_ – R _b,i_ )/E _b,i_ + (NF _a,i_ – NF _b,i_ )/E _b,i_ = (TNR _a,i_ – TNR _b,i_ )/E _b,i_ or

> 10 It is common for governments to consolidate or split ministries from year to year.  This can confound comparisons over time.

> 11 Drazen and Eslava (2005) is a good example.

> 12 Statutory expenditures on pensions and other transfers may be quite high in wealthy countries which tend to have older populations.  With the exception of Norway, such countries do not appear in the sample used here.

> 13 Net borrowing is therefore the sum of domestic borrowing, external commercial borrowing and external budget support.  Data on planned and actual borrowing for these three categories was not consistently available.  The PEFA indicator D-1 for direct budget support proved to be a poor source as it compared actual budget support outcomes with donor projections rather than approved budgetary estimates.

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