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In the United States

The power of the purse plays a critical role in the relationship of the United States Congress and the President of the United States, and has been the main historical tool by which Congress can limit executive power. One of the most recent examples is the Foreign Assistance Act of 1974. Which eliminated all military funding for the government of South Vietnam and effectively ended the Vietnam War. Other recent examples include limitations on military funding placed on Ronald Reagan by Congress. Which led to the withdrawal of United States Marines from Lebanon. Appropriation bills cannot originate in the Senate, but the Senate can amend appropriation bills that originate in the House. Although it is famously used today by Congress to limit the power of the executive in military affairs, it was once a larger power. Congress used the power of the purse to choose whether to appropriate funding to any area which the executive might desire. If the executive wanted to spend money, Congress would have to write a bill, pass that bill into law, and appropriate the funds for it. This was the check of the legislative upon the executive authority in domestic as well as foreign affairs. However, after the Great Depression and the passage of the National Industrial Recovery Act, bureaus and agencies were created by the executive, with enough spending power that the Congress no longer held the reins of power over domestic spending. Other laws were passed allowing the new bureaus to pass their own directives within a wide sphere of authority. Because of the far reach of these agencies, the domestic power of the purse check is no longer meaningful. The power of the purse in military affairs was famously subverted during the Iran-Contra scandal in the 1980s. Congress denied further aid to the Contras in Nicaragua. Unwilling to accept the will of Congress, members of the Reagan Administration solicited private donations, set up elaborate corporate schemes and brokered illegal arms deals with Iran in order to generate unofficial funds that could not be regulated by Congress. Presently, budget limitations and using the power of the purse form a controversial part of discussion regarding Congressional opposition to the Iraq War. On March 23, 2007, the U.S. House of Representatives passed a supplemental war budget that imposed a timeline on the presence of American combat troops in Iraq, but the legislation was not passed. The power of the purse has also been used to compel the U.S. states to pass laws, in cases where Congress does not have the desire or constitutional power to make it a federal matter. The most well-known example of this is regarding the drinking age, where Congress passed a law to withhold federal funds for highways in any state that did not raise the age to 21. Congress was not allowed to pass the law itself because the 21st Amendment (which ended Prohibition in the U.S.) gave control of alcohol to the states. In 2009, Congress has also considered similar legislation regarding texting while driving, which is now widely known to be as dangerous as drunk driving.

http://www.pbs.org/wgbh/americanexperience/features/general-article/reagan-iran/

http://www.time.com/time/magazine/article/0,9171,950076,00.html