Most if not all social policies entail redistribution of scarce public resources from central government to regional and local authorities, to individual citizens or non-government agencies. Governments use a wide variety of Instruments to allocate public funds, including direct state provision of subsidies and goods and services, setting budgets at different levels, and regulation of social insurance schemes. Most industrialised countries have developed budget models based on implicit or explicit allocation criteria. Governments usually start by determining global budgets for an entire category of public spending and then specifying the amounts allocated for categories of spending, and next, the budgets for individual agencies. Within such a ‘cascading’ model, the lower level budgets may be more controversial than the global budgets, as they directly affect the amounts available to individual actors in the system, e.g. hospitals or health insurance agencies. Setting budgets not only shifts decision-making authority but also financial risks from the central government to decentralised actors. The introduction of the prospective budgeting model for the Dutch sickness funds illustrates why determining budgets is not merely a matter of choosing objective allocation criteria, but also, of interaction between state and stakeholders. In the typical Dutch neo-corporatist policy arena, where organised interests share responsibilities with government for the shaping and implementation of social policies, the health insurance agencies actively participated in the development of the budget model.