Current Issues in Public Sector Economics

Frontmatter

1. Introduction: The Current State of Public Sector Economics

Abstract

Anyone who sets out to present a collection of essays which cover the current state of a subject runs the risk or charge that a number of important topics have been omitted. Attempting to survey the rapidly expanding boundaries of the domain of public sector economics is, therefore, a risky venture. As the recently published Handbook of Public Economics (Auerbach and Feldstein, 1985) demonstrates, the domain of public sector economics covers a vast territory.

Peter M. Jackson

2. Taxation, Public Choice and Public Spending

Abstract

This chapter reviews some of the issues and topics in modern public sector economics which are not covered in the other chapters of this book. Particular attention is given to taxation and capital; the effects of taxation on corporate financing decisions and personal savings; optimal taxation; international aspects of taxation and general equilibrium tax policy models. Modern public choice theory is also reviewed along with the analysis of public spending.

Peter M. Jackson

3. Income Taxation, Income Support Policies and Work Incentives in the UK

Abstract

One of the oldest, yet currently most topical, issues in the economics of public policy is the question of the disincentive effects associated with income taxation (and income support schemes). Recent concern over work disincentive effects has motivated quite drastic reforms to tax (and, in some cases, social security) systems in the USA, UK, Australia, and elsewhere. Even Scandinavian countries with socialist governments and a long tradition of steeply progressive income tax systems and extensive social security provisions, such as Denmark and Sweden, have tax reforms to promote work incentives under consideration.

Ian Walker

4. The Economics of Taxpayer Compliance

Abstract

There is now a great deal of evidence suggesting that tax evasion is fairly widespread throughout European and North American economies. Estimates of the so-called ‘black economy’ indicate that perhaps 10 per cent of economic activity in these countries has been driven underground in the attempt to evade payment of tax (for a detailed survey, see Pyle, 1989, chs 2–4).

D. J. Pyle

5. Preference Revelation and Public Goods

Abstract

The conditions that must hold if a public good is to be provided at a Pareto-efficient level are well established in the economics literature and were first set out formally by Samuelson (1954, 1955). Assuming that the public good is financed out of non-distortionary taxation, these conditions require that the good be provided up to the level at which

$$\sum\limits_i {MR{S_{gx}}} = MR{T_{gx}}]$$

where MRS _gx is the marginal rate of substitution between the public good, g, and a private good numeraire, x; MRT _gx is the marginal rate of transformation between the two goods; and there are i consumers of the public good.¹ This is often referred to as the Samuelson condition, and the required amendments to it to allow for finance out of distortionary taxation have been established by Stiglitz and Dasgupta (1971) and Atkinson and Stern (1974).

Richard R. Barnett

6. Public Choice: An Introductory Survey

Abstract

Perhaps the most difficult aspect about writing a chapter on ‘Public Choice’ is that of offering a definition that conveys the full flavour of the variety of topics encompassed by the subject. One definition, which has the merit of being both succinct and reasonably accurate, is that it is ‘an invasion by economics of political science’ (Tullock, 1988, p. 1). By this is meant that Public Choice takes as its province the application of economists’ methods of a positive analysis of problems that are conventionally regarded as being those of political science, concerning events generally in the public sector.

Vani K. Borooah

7. Issues in Multi-Level Government

Abstract

Much of the discussion in public sector economics assumes implicitly that the public sector in any country consists of a single government body. In practice, however, virtually every country has several levels or tiers of government. For there is usually one or more tiers of local authorities — and perhaps a tier of state authorities — in addition to the central government. This chapter looks at the main issues which arise with multi-level government.

David King

8. Public Finance in Developing Countries

Abstract

The goals or objectives of public finance in developing countries are those of economic policy as a whole: economic growth, internal and external stability, and the attainment of an appropriate distribution of income and wealth. Taxation and expenditure are by no means the only or the most important means of achieving such national objectives. Nevertheless, since the budget is one of the most pervasive instruments of government policy in any economy, the effects of budgetary policy on such general public policy objectives as growth, stability and distribution must be taken explicitly into account in formulating tax and expenditure policy.

Richard M. Bird

9. The Distribution and Redistribution of Income

Abstract

The 1970s and 1980s brought renewed interest, both theoretic and empirical, in matters of income distribution and redistribution. How may we evaluate trends in income distribution through time, and differences between countries? Is the income tax ‘a good thing’? What constitutes an improvement in an income tax?

Peter J. Lambert

10. Asymmetry of Information in Public Finance

Abstract

A large and interesting class of problems in economics involves delegated choices in which one individual or organisation has the responsibility for taking decisions in the interest of one or more others. A usual claim in economics is that an optimum exists because each agent realises that he could not do better for himself than by accepting the prevailing settings and maximising his objective function using those constraints.

Rosella Levaggi

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