GRADUATE SCHOOL

MASTER OF PUBLIC ADMINITRATION

MIDTERM EXAMINATION

Public Fiscal Policy & Financial Management

Direction. Answer the following questions as clearly and comprehensively as

possible. Everyone is to answer questions A to D and answer the latter questions
based on your section. Go through the matrix for grading your answers to the
questions.
Legibility – 4 points
Content and Substance – 10 points
Consistency of thought and ideas – 6 points

A. Public Financial Management & Fiscal Policy be explained without including

the concept of “Public Debt”? Why? Explain lengthily.

Answer: Certainly! Public financial management and fiscal policy can be

explained without directly involving the concept of public debt. Here are the key
aspects:

1. Government Revenue: - Taxes: The government collects revenue through

various forms of taxation, such as Income tax that’s imposed on individuals or
entities in respect of the income and profits earned by them. Sales tax is a
tax paid to a governing body for all the sales of a certain goods and services.
Property tax is a taxed based on the assessed value of an item such as real
estate or personal property. Corporate tax is a type of direct tax levied on
income and capital on corporations and other similar legal entities. Non-tax
revenue: The government may also generate revenue from sources like fees,
fines, licenses, and the sale of goods and services.

2. Government Expenditure: - Public spending: The government allocates funds

for various public services, including education, healthcare, infrastructure,
defense, social welfare programs, and other government operations. -
Budgeting and resource allocation: The government develops and manages a
budget to prioritize and distribute resources based on policy objectives and
economic conditions.

3. Fiscal Policy: - Stabilization: Fiscal policy can be used to stabilize the

economy by adjusting government spending and revenue during economic
fluctuations, such as recessions and periods of high inflation. - Economic
growth: Fiscal policy can also aim to promote economic growth through
measures like public investment, incentives for private investment, and
policies that encourage consumption and productivity. - Income distribution:
Fiscal policy can be used to influence the distribution of income and wealth,
for example, through progressive taxation and social welfare programs.

4. Public Financial Management: - Budgeting and financial planning: The

government develops and implements a comprehensive budget process,
 including forecasting revenue, planning expenditures, and ensuring effective
allocation of resources. - Financial control and accountability: Governments
establish systems and mechanisms to ensure proper financial management,
internal controls, and transparency in the use of public funds. - Performance
management: Governments may measure and evaluate the efficiency and
effectiveness of public programs and services to inform decision-making and
budget allocations. By focusing on the core elements of government revenue,
government expenditure, fiscal policy, and public financial management, the
key aspects of public financial management and fiscal policy can be explained
without directly involving the concept of public debt. This approach
emphasizes the government's role in resource mobilization, allocation, and
the broader economic and social implications of its financial decisions.

Answers: The term “public financial management” commonly describes elements

of an annual budget cycle, which typically centers around (1) budget formulation;
(2) budget execution; (3) accounting and reporting; and (4) external security and
audit.
Provides an overview of Public Financial Management (PFM), its importance, and
its place within the context of international development. The term “public
financial management” commonly describes elements of an annual budget cycle,
which typically centers around (1) budget formulation; (2) budget execution; (3)
accounting and reporting; and (4) external security and audit. A general
consensus exists around the objectives of the PFM system. Multiple authors have
framed the PFM system around achieving the objectives of aggregate discipline,
including allocation and operational efficiency. The maintenance of aggregate
fiscal discipline remains the first objective of a PFM system and deals with the
interaction between two variables: revenue and expenditure. A PFM system
should ensure that public resources remain allocated to agreed-upon strategic
priorities and spur reallocation from lesser to higher priorities to ensure allocation
efficiency. It should also ensure operational efficiency by achieving maximum
value for money in the delivery of services.
Fiscal policy is the use of government spending and taxation to influence the
economy. Governments typically use fiscal policy to promote strong and sustainable
growth and reduce poverty. Fiscal policy refers to the use of government spending
and tax policies to influence economic conditions,
especially macroeconomic conditions. These include aggregate demand for goods
and services, employment, inflation, and economic growth.

During a recession, the government may lower tax rates or increase spending to
encourage demand and spur economic activity. Conversely, to combat inflation, it
may raise rates or cut spending to cool down the economy.

Fiscal policy is often contrasted with monetary policy, which is enacted by central
bankers and not elected government officials

Distinguish Public Financial Management from Public Fiscal Policy in two ways.
Answer: Public Financial Management and Public Fiscal Policy are interrelated
but distinct concepts in the realm of public finance. Here are two ways to
distinguish between the two:
 1. Scope and Focus: - Public Financial Management (PFM) focuses on the
efficient, effective, and transparent management of public financial resources. It
encompasses the processes and systems involved in planning, budgeting,
executing, accounting, reporting, and auditing the government's financial
activities. - Public Fiscal Policy (PFP), on the other hand, is concerned with the
broader objectives and strategies related to government revenue, expenditure,
and the overall management of the public sector's fiscal position. It involves the
formulation and implementation of policies aimed at achieving macroeconomic
goals, such as economic growth, price stability, and employment.

2. Decision-making and Responsibilities: - Public Financial Management is

primarily focused on the operational and administrative aspects of managing
public funds. It involves the day-to-day decision-making and implementation of
financial processes within government agencies and departments. - Public Fiscal
Policy is a higher-level, strategic decision-making process that involves the
government's executive and legislative branches. It encompasses the formulation
and adoption of policies, laws, and regulations that shape the overall fiscal
environment and direction of the country. In summary, while Public Financial
Management deals with the practical and operational aspects of managing public
funds, Public Fiscal Policy is concerned with the broader, strategic decisions and
policies that govern the government's revenue, expenditure, and overall fiscal
position. The two are interrelated, as the effectiveness of PFM can directly impact
the success of PFP in achieving macroeconomic objectives.:

Monetary Policy vs. Fiscal Policy: An Overview

Monetary policy and fiscal policy refer to the two most widely recognized
tools used to influence a nation's economic activity. Monetary policy is
primarily concerned with the management of interest rates and the total
supply of money in circulation and is generally carried out by central
banks, such as the U.S. Federal Reserve (Fed). Fiscal policy is a collective
term for the taxing and spending actions of governments. In the United
States, the national fiscal policy is determined by the executive and
legislative branches of the government.

KEY TAKEAWAYS

 Both monetary and fiscal policy are macroeconomic tools used to

manage or stimulate the economy.
 Monetary policy addresses interest rates and the supply of money in
circulation, and it is generally managed by a central bank.
 Fiscal policy addresses taxation and government spending, and it is
generally determined by government legislation.
 Monetary policy and fiscal policy together have great influence over
a nation's economy, its businesses, and its consumers.
Monetary Policy
Central banks typically use monetary policy to either stimulate
an economy or to check its growth. By incentivizing individuals and
businesses to borrow and spend, the monetary policy aims to spur
economic activity. Conversely, by restricting spending and incentivizing
savings, monetary policy can act as a brake on inflation and other issues
associated with an overheated economy.

The Fed frequently uses three different policy tools to influence the
economy:

 Open Market Operations: Open market operations are carried out

on a daily basis when the Fed buys and sells U.S. government
bonds to either inject money into the economy or pull money out of
circulation.1
 Reserve Requirements: By setting the reserve ratio, or the
percentage of deposits that banks are required to keep in reserve,
the Fed directly influences the amount of money created when banks
make loans.
 Discount Rate: The Fed also can target changes in the discount
rate, which is which is the interest rate it charges on loans it makes
to financial institutions. This tool is intended to impact short-term
interest rates across the entire economy.

B. Explain the concept of “Progressive Taxation”. Is this system a legitimate

process to tax individuals and corporations? Why? Justify. State two (2)
loopholes to a Progressive System of Taxation and elucidate.

Answer: Progressive taxation means higher tax rates for those with higher income or
more wealth, so that those who earn or have more are taxed at a higher rate.
Personal income tax based on graduated scales where the tax rate goes up as
income level rises is probably the clearest example of progressivity.
The concept of progressive taxation is a system where the tax rate increases as the
taxable income or wealth of an individual or corporation increases. This means that
people with higher incomes or greater wealth pay a higher percentage of their
income or wealth in taxes compared to those with lower incomes or less wealth.
Progressive taxation is considered a legitimate and widely accepted process for
several reasons:
1. Equity and Fairness: Progressive taxation is seen as a more equitable and fairer
system of taxation, as it aligns with the principle of ability to pay. Those with higher
incomes or wealth can afford to contribute a larger share of their income or wealth
towards the financing of public goods and services.
2. Redistribution of Wealth: Progressive taxation can help to redistribute wealth and
income more evenly within a society. By taxing the wealthy at a higher rate, the
government can generate additional revenue that can be used to fund social
programs, infrastructure, and other public services that benefit lower-income
individuals and communities.
3. Economic Efficiency: Progressive taxation can promote economic efficiency by
reducing the tax burden on those with lower incomes, leaving them with more
disposable income to spend on goods and services, which can stimulate economic
growth.
4. Societal Cohesion: A progressive tax system can contribute to social cohesion
and a sense of shared responsibility, as citizens with higher incomes or wealth
recognize their role in supporting the broader public good. While progressive taxation
is a legitimate and widely accepted system,
it is not without its potential loopholes:
1. Avoidance and Evasion: Individuals and corporations may attempt to avoid or
evade progressive taxation through legal or illegal means, such as exploiting tax
loopholes, using offshore tax havens, or engaging in tax evasion.
2. Complexity and Loopholes: Progressive tax systems can be complex, with
various deductions, exemptions, and loopholes that may be exploited by those with
the resources and expertise to navigate the system. This can lead to inequities and a
lack of fairness in the overall tax burden. To address these potential loopholes and
strengthen the progressive tax system, governments may consider measures such
as: 1. Closing tax loopholes and eliminating deductions or exemptions that
disproportionately benefit the wealthy.
2. Improving tax enforcement and cracking down on tax evasion and avoidance,
particularly among high-income individuals and large corporations.
3. Simplifying the tax code to reduce complexity and make it more difficult to exploit
loopholes.
4. Enhancing transparency and public reporting requirements to increase
accountability and public trust in the tax system. Overall, progressive taxation is a
legitimate and widely accepted system that aims to promote equity, fairness, and the
redistribution of wealth. While it is not without its challenges, addressing the potential
loopholes can help to strengthen the progressive tax system and ensure that it
effectively serves the broader public interest.

Advantages of a Progressive Tax

On the pro side, a progressive tax system reduces the tax burden on the people
who can least afford to pay. That leaves more money in the pockets of low-wage
earners, who are likely to spend more of it on essential goods and stimulate the
economy in the process.
A progressive tax system also tends to collect more taxes than flat taxes or
regressive taxes, as the highest percentage of taxes is collected from those with the
highest amounts of money.

A progressive tax also results in those with the greatest amount of resources
funding a greater portion of the services that all citizens and businesses rely on,
such as road maintenance and public safety.

Disadvantages of a Progressive Tax

Critics of progressive taxes consider them to be a disincentive to success. They

also oppose the system as a means of income redistribution, which they believe
punishes the wealthy, upper class, and even the middle class, unfairly.

Opponents of the progressive tax generally are supporters of low taxes and
correspondingly minimal government services

C. The Budget Cycle is said to be part and parcel to good governance. Which of
the four-part budget cycle can be considered a least important part? Why?
Answers: The four main stages of the budget cycle are:
1. Budget Formulation
2. Budget Approval
3. Budget Execution
4. Budget Evaluation and Audit When it comes to the importance of these stages
within the context of good governance, it is difficult to single out any one stage as
the "least important." Each stage plays a critical role in ensuring transparent,
accountable, and effective public financial management. However, if I had to
make a case for one stage being relatively less important compared to the others,
it could be the Budget Evaluation and Audit stage.
Here's the rationale:
1. Budget Formulation and Approval: These stages are crucial as they set the
strategic priorities, allocate resources, and provide the legal authority for the
government to spend public funds. They lay the foundation for the entire budget
cycle and are central to good governance.
2. Budget Execution: This stage involves the actual implementation of the budget,
ensuring that funds are spent as intended and in compliance with relevant laws
and regulations. Effective budget execution is essential for the delivery of public
services and achieving policy objectives.
3. Budget Evaluation and Audit: This stage involves reviewing the performance of
the budget, assessing the efficiency and effectiveness of spending, and
identifying areas for improvement. While important for accountability and
learning, one could argue that it is relatively less critical compared to the other
stages in the immediate term. The rationale is that if the budget formulation,
approval, and execution stages are done well, the evaluation and audit stage
serves more as a feedback loop to improve future budget cycles, rather than
being a prerequisite for the current one. Additionally, the evaluation and audit
stage may be considered less important in the sense that it is not directly
responsible for the allocation and use of public funds, which is the primary
function of the other three stages. However, it is important to note that this is a
relative assessment, and the Budget Evaluation and Audit stage is still a crucial
component of the overall budget cycle and good governance. Neglecting this
stage can lead to a lack of accountability, missed opportunities for improvement,
and potential misuse of public resources. In summary, while the Budget
Evaluation and Audit stage is an important part of the budget cycle, it could be
considered relatively less important compared to the other three stages, which
are more directly responsible for the allocation and execution of public funds.

State three (3) reasons why the State of the Nation Address (SONA) of the
President is an important activity of the executive department. What principle of
governance can you relate “public accountability” to and why?

Answer: The State of the Nation Address (SONA) by the President is an

important activity of the Executive department for the following reasons: 1.
Communicating the government's vision and priorities: The SONA allows
the President to articulate the administration's key policy objectives,
legislative agenda, and plans for the upcoming year. This communication
helps set the direction for the government and informs the public,
legislature, and other stakeholders about the Executive's priorities. 2.
Reporting on the state of the country: The SONA provides an opportunity
for the President to present an overview of the country's economic, social,
and political conditions. This report helps inform the public and other
branches of government about the progress made, the challenges faced,
and the overall state of the nation. 3. Promoting accountability and
transparency: The SONA is a public event that is widely covered by the
media, allowing the President to be held accountable for the government's
performance and actions. It also promotes transparency by giving the
public access to the President's report and plans. Public Accountability and
the Principle of Good Governance: The principle of public accountability
can be closely related to the principle of good governance. Public
accountability refers to the responsibility of the government and its
officials to answer to the public for their actions and decisions. This
principle of public accountability can be linked to the broader principle of
good governance, which emphasizes the importance of transparency,
responsiveness, and the rule of law in the functioning of the government.
Good governance requires that the government be accountable to the
public for its actions and decisions, and that it operates in a transparent
manner. The SONA, as an important activity of the Executive department,
contributes to this principle of good governance by enhancing public
accountability. By reporting on the state of the nation, communicating the
government's priorities, and being subjected to public scrutiny, the
President and the Executive department are held accountable for their
performance and actions. This accountability helps ensure that the
government is responsive to the needs and concerns of the citizens, and
that it operates in a manner that is consistent with the principles of good
governance. In summary, the SONA is an important activity of the
Executive department that promotes public accountability, which is a key
principle of good governance. By enhancing transparency and enabling the
public to hold the government accountable, the SONA contributes to the
overall effectiveness and legitimacy of the political system.
 The SONA, which is often broadcast, serves as a means to inform the
nation about its present economic, political, and social condition. It is also
a vehicle for the president to summarize the accomplishments and plans of
their program of government both for a particular year and until the end of
their term of office.
The State of the Nation Address (SONA) is a constitutional obligation and
yearly tradition, wherein the chief executive reports on the status of the
country, unveils the government’s agenda for the coming year, and
proposes to Congress certain legislative measures. The President of the
Philippines appears before Congress upon its invitation, for which purpose
a joint session is held in the Session Hall of the House of Representatives
The purpose of this address, often referred to as the SONA, is to apprise
the nation of the current state of the country, the government's
accomplishments in the past year, and its plans for the future. The SONA is
not just an update to the nation but also a policy-setting speech.

D. The President of the Federal Socialist Republic of the Filipini ordered his
Secretary of Tourism to close down all beaches in Paga-waan Island, a premier
beach province of the Republic. Because of this, Secretary Bobong Tan-Ga of
the Commission on Tourism was accused of grave abuse of discretion by a
private group of Travel agencies before the Lupong Tagapamayapa in that
Barangay.

Atty. Pekeng Talino heard of this and immediately informed his compadre
Senator Kura Kot to initiate ‘impeachment’ proceedings against the Secretary.
The unpopular and unschooled Senator immediately filed an impeachment
case against the Secretary before the Senate of the Republic.

Questions:

D.1. Will the impeachment proceeding at the Senate prosper? Why? Defend.

D.2. If Atty. Pekeng Talino filed the impeachment case before the House of
Representative against Secretary Bobong Tan-Ga on the ground of “grave
abuse of discretion amounting to excess or lack of jurisdiction”, will the
impeachment proceeding prosper? Why? Elucidate.
Answer: D.1. No, the impeachment proceeding at the Senate will not prosper. The
grounds for impeachment are limited to "culpable violation of the Constitution, treason,
bribery, graft and corruption, other high crimes, or betrayal of public trust" as outlined in
the Constitution. Mere "grave abuse of discretion" by a Cabinet Secretary in the exercise
of their functions does not constitute an impeachable offense. The President's order to
the Secretary of Tourism to close down the beaches in Paga-waan Island, even if
questionable, is an exercise of executive power and discretion. While the travel agencies
may have a valid legal action against the Secretary for abuse of discretion, this does not
necessarily rise to the level of an impeachable offense that would warrant the Senate's
intervention. The Constitution establishes a high bar for impeachment, and the mere filing
of an impeachment case by an "unpopular and unschooled" Senator without proper
grounds is unlikely to succeed. The Senate, as the impeachment court, would likely
dismiss the case for lack of merit.
D.2. If Atty. Pekeng Talino filed the impeachment case before the House of
Representatives against Secretary Bobong Tan-Ga on the grounds of "grave abuse of
discretion amounting to excess or lack of jurisdiction," the impeachment proceeding may
also not prosper. The grounds for impeachment, as mentioned in the previous question,
are limited to the specific offenses outlined in the Constitution. "Grave abuse of
discretion" is a legal concept that refers to a situation where a government official acts in
a capricious, whimsical, or arbitrary manner, amounting to an excess or lack of
jurisdiction. While this may provide a basis for a legal challenge against the Secretary's
decision, it does not necessarily constitute an impeachable offense. The House of
Representatives, as the body that initiates impeachment proceedings, would likely
scrutinize the case and determine whether the alleged actions of the Secretary meet the
high bar for impeachment. Unless there is evidence of other impeachable offenses, such
as corruption or betrayal of public trust, the impeachment proceeding may not prosper,
even if the House initially accepts the case. The distinction between a legal challenge and
an impeachable offense is an important one, and the House would need to carefully
evaluate the grounds and evidence presented to determine the appropriateness of
impeachment proceedings.