Fuzzy inference approach to uncertainty in budget preparation and execution

Abstract

In recent times, diverse uncertainties in the global economic environment have made it difficult for most countries to meet their financial obligations. For example, according to statistics from European Commission, 24 out of 29 recorded European Economic Area member countries had budget deficits in 2014. Therefore through modelling and simulations, this paper proposes flexible decision support schemes that could be used in managing the uncertainties in budgeting. Rather than entirely relying on estimates of anticipated revenues (which are uncertain and difficult to predict) in government budgeting, the scheme proposes incorporating fuzzy inference systems (which is able to capture both the present and future uncertainty) in predicting the anticipated revenues and consequently, in proposing government expenditures. The accuracy of fuzzy rule base helps in mitigating adverse effects of uncertainties in budgeting. We illustrated the proposed scheme with a case study which could easily be adapted and implemented in any budgeting scenarios.