A budget is a document or a collection of documents comprising a detailed

description of the expected revenues and expenditures of a given institution,

associated with the activities that are planned for achieving specific purposes or

goals, within a given period.

In the case of subnational governments, the local budget is intended to link the

community needs with the amount of resources necessary to satisfy them, serving

as a guide for local financial management and as a tool that can be used by citizens

to evaluate subnational governments performance and fiscal discipline. Therefore,

budgeting is fundamental for the planning, control, and evaluation process of

governments.

In the public sector, budgets have three broad functions: economic, political, and

legal. Economic, because they are an exercise of planning, controlling, and

administering activities, intended to balance revenues and expenditures, and to

allocate available resources efficiently in order to maximize social welfare. The

budget establishes which activities will be undertaken (and therefore, the type,

quantity, and quality of services provided to citizens) and how resources will be

obtained and allocated. Budgets help officials to check if the flows of revenues and

expenditures during the fiscal period materialize as planned, and if operational

adjustments are necessary. At the end of the fiscal period, comparisons of budgets

with accounting final reports allow an evaluation of whether the flows of revenues

and expenditures were in accordance with expectations or not. If linked to the

subnational government objectives, budgets allow for an assessment of its efficiency

The political function of the budget results from the fact that budget proposals
offered by the executive body of subnational governments have to be approved by
committees that are usually elected. Furthermore, during the implementation of the
budget and at the end of the fscal period, offcials have to present reports that
require approval by legislative bodies. Finally, since budgets are regulated by laws,
rules and regulations and, in some cases, they have a legal status, they carry out a
legal function. They establish limits to managerial decisions and actions of subnational
governments, and offcials violating them may be subject to penalties.
There are several types of budgets. Operating (or current) budgets focus on
ongoing operations while capital budgets are concerned with new long-term assets
(such as land, infrastructures and equipment). In some countries, the law requires
that subnational governments have balanced operating budgets. As for capital
budgets, since they concern the acquisition and construction of assets that generate
benefts over several years, inter-period equity suggests that they should not be
fnanced by taxes in a single year, but rather by debt that is repaid over a period that
extends farther into the future. Additionally, there are special fund budgets, which
cover programs (e.g., highways) funded by specifc revenue sources (e.g., sales
taxes on gasoline).