The Fiscal Autocrat’s Toolkit
Fiscal policy is not just about taxing and spending — it is a powerful political tool. In fact, authoritarians have used fiscal controls to undermine checks and balances and weaken political opposition, as well-documented historical cases show.
By Paolo de Renzio (Brazilian School of Public and Business Administration) and (OGP)
As democracy continues its retreat across the world, established and budding autocrats are flexing their muscle, including in the fiscal arena. The United States has been in the headlines as Donald Trump has asserted his authority to withhold or delay spending appropriated by Congress. Congress, which formally has the “power of the purse,” had a muted response and the Supreme Court has looked favorably on this action.
How this will play out in the US is unclear. What is clear, however, is that authoritarians have used fiscal controls to undermine checks and balances and weaken political opposition. Well into the second decade of the authoritarian counter-wave, it is worth looking at specific budgetary techniques of the executive to wrest power from the parliament.
This blog post looks at seven such tools that have been used by autocrats in the past. It raises some questions about how to tell when these techniques are being used to enhance or weaken democracy. Finally, it poses some open-ended questions for discussion in the spirit of debate.
Seven Tools of Fiscal Autocracy
Fiscal policy is not just about taxing and spending — it is a powerful political tool. It is the most clear representation of the state’s priorities and a signal of who is meant to get what from the public purse. The list is certainly incomplete, but is based on well-documented cases.
1. Extrabudgetary Funds and Secret Budgets
Extrabudgetary funds and secret budgets refer to funds exempted from normal legislative approval or scrutiny. These budgets operate outside standard government procedures and accounting systems.
Even in the few cases where secrecy might be desirable (say, national security), such funds can still be subject to secure review by parliaments and auditors. A government may also mandate declassification after a designated time proportionate to the sensitivity of the material. Even where secrets are necessary, the public can understand the overall size of such funds. The Philippines provides an example of this practice.
Without such review processes, funds are especially subject to abuse. In Russia, extrabudgetary funds have been used to funnel resources into security agencies and political patronage networks at the regional level, bypassing parliamentary oversight. While some of these funds may go to social spending, funds designated to state-owned enterprises or sovereign wealth funds tend to be particularly opaque and unaccountable.
2. Budget Reversions
A reversionary budget is a legal mechanism where, if a new budget is not passed, the previous year’s budget automatically remains in place. The measure can help stabilize spending, but it may also be weaponized by leaders to control legislative bodies or force policy concessions.
Meiji-era Japan adopted such rules directly from Prussian autocrats. In Pinochet-era Chile, failure to pass a budget automatically continued the prior year’s budget. This had the dual benefit (from the government’s perspective) of minimizing social spending, which tends to grow automatically, and cutting down on legislative debate and scrutiny.
There is significant evidence that, in the short-term, executive-favoring budget reversions can be used to rein in spending. Consistently carried out, however, they have the effect of sidelining parliamentary debate and putting off the task of prioritizing public demands. In the long term, they can lead to authoritarian behavior and higher costs of capital for a country.
3. Centralization and Decentralization
In most countries, multiple levels of government have separate budgeting powers. At a minimum, even unitary national governments delegate some spending powers to provincial and local governments, as in Chile.
Authoritarian governments often try to centralize fiscal authority. This was the case in Fujimori’s Peru of the 1990s, where the dictatorship sought to suppress local spending and to eviscerate what it saw as opposition strongholds. However, the opposite may also be true. Suharto’s Indonesia decentralized fiscal expenditure. This allowed for more clientelistic practices that allowed Jakarta to play the puppeteer over regional elites. More recently, experts have made similar arguments about some provincial governments in Nigeria.
4. Constituency Development Funds
Constituency development funds (CDFs) allocate public money directly to legislators for discretionary use in their districts. While these funds are often framed as a way to empower local communities, they can easily become tools of patronage. More troubling for democracy, they can divert parliamentarians from their constitutional responsibilities. Instead of focusing on democratic representation, budgetary formulation, and oversight, they increasingly act as administrators for the presidency.
In Brazil, budget amendments allocated to legislators to fund projects in their constituencies (known as orçamento secreto, or “secret budget”) were used by former president Bolsonaro in exchange for political support, and came to represent about one-quarter of Brazil’s discretionary federal budget.
Proponents of CDFs say that they allow legislators to bypass corrupt local governments and to deliver precisely what constituents want. However, Albert van Zyl of the International Budget Partnership argues that they have the perverse effect of weakening already weak local governments by bypassing them and diverting from core legislative functions. Evidence in their favor is, at best, anecdotal. This leads him to conclude that they have a corrosive effect.
5. Undermine Supreme Audit Institutions (SAIs)
SAIs are responsible for overseeing the quality of government spending and ensuring accountability. When their independence is undermined — through political appointments, funding cuts, or legal restrictions — fiscal oversight weakens, enabling corruption and mismanagement. INTOSAI, the organization responsible for standard-setting among such bodies, has developed consensus-based standards for independence and integrity.
Attacking SAIs is a common practice among corrupt authoritarians. In Turkey, the government has steadily eroded the independence of its Court of Accounts, limiting its ability to investigate public spending. Importantly, Turkish security forces have exempted themselves from review. In Venezuela, the National Audit Office has been packed with loyalists who turn a blind eye to financial irregularities, allowing unchecked executive control over state resources. In Liberia, the killing of four auditors was enough to spark outrage and oust a president in 2020.
6. Impoundment, Underspending, and Line-Item Vetoes
The Trump Administration famously cancelled USAID expenditures that had been allocated by Congress, which delegated prioritization to the agency. (Full disclosure: OGP had some of its funding through USAID.) Following fires in California in February, Trump informed Governor Gavin Newsom that he would not release emergency funding unless the state acted on his immigration priorities. This is an example of withholding expenditures and centralizing budget controls, which are typically disbursed on a less transactional basis.
This is known as “impoundment,” which refers to when an executive deliberately withholds or delays spending that has been approved by the legislature. Underspending occurs when funds allocated for key programs are not fully utilized, often as a political tool. This can function in practice as a line-item veto. The line-item veto allows leaders to selectively strike down portions of a budget while keeping the rest intact, giving them disproportionate power over spending decisions.
7. Manipulate Economic Data
Around the world, autocracies regularly manipulate data to hide mistakes, underplay economic downturns, and shield acts of cronyism from public scrutiny. This has the short term benefit of providing some stability, but impedes growth.
Take one example. In the 1960s, the Republic of Korea under President Park Chung-hee was authoritarian. While the economy was rapidly growing, investors began to lose confidence in economic data. Government interference, statistical manipulation, and weak checks on power meant that investors could not trust that what they saw on paper matched reality. USAID and the World Bank were concerned that distorted or unreliable economic data was undermining effective policymaking and investor confidence. This is typical of authoritarian states.
At the urging of foreign investors, Korea established independent and technocratic economic institutions to improve planning and transparency. In 1971, the Republic of Korea established the Korea Development Institute (a collaborator with OGP) and the Economic Planning Board. These organizations provided rigorous research, which served to buffer economic research from political interference. These organizations helped build the country’s developmental state and led to greater democratization. There is overwhelming evidence that countries undergoing autocratization experience the opposite trend. From the perspective of open government, it is important that data is not just public, but that it has integrity and institutions around it, like the Korea Development Institute, to ensure independence and integrity.
When Does Fiscal Control become Authoritarian?
Clearly, some fiscal controls are necessary, as governments need the means to rein in public spending under some circumstances. And many of the tools above can be used for legitimate reasons. Centralization of public spending, for example, may address fiscal profligacy of local governments and help ensure a more equitable distribution of resources. Arguments also exist that impoundment and underspending can be democracy enhancing, allowing legislators to promise things to constituents that are then tempered by a prudent executive. Limiting overspending can arguably free the hand of future citizens who will be able to spend less on debt service or have savings absorbed by inflation.
What is important is to understand if and when these controls come at too high of a cost, or are being used as a political power-grabbing exercise which ultimately undermines democracy and accountability.
Here are five questions that both governance experts and citizens can ask themselves as they see their governments use any of these tools.
Are the fiscal changes likely to:
- Result in the breach of any law?
- Lead to more or less transparency?
- Increase or decrease independent, rule-based review?
- Allow for better representation of public views?
- Allow for more or less self-dealing, embezzlement, and misallocation?
While it may be difficult to have clear answers to these questions, we hope they help start a discussion about how to evaluate these often-controversial reforms.
