secular cost changes and the size of government towards a generalized theory abstract baumol s cost disease account of government growth is contrasted with that of kau and rubin who focus on decreasing costs of tax collection over time the apparent paradox wherein the first theory explains government growth by cost increases and the second by way of cost decreases is technically resolved why both theories seem to be able to stand up to empirical tests even though they use similar data is then explained finally public choice analysis is employed to reveal further potential for the ultimate construction of one all embracing secular cost change theory of government growth

alternative forms of deposit insurance pricing and bank incentive issues abstract this paper derives formulas for a deposit insuring agency s liability and hence a fair value deposit insurance premium and the equilibrium value of bank equity considering a wide variety of factors affecting individual bank risk both fixed rate and variable rate risk sensitive insurance systems are analyzed consideration is made as to whether the deposit insuring agency makes direct payments to depositors or arranges mergers following bank closings the effect of these various policy choices on banks incentive for risk taking is also analyzed

tests of a rational theory of the size of government in many countries the political party holding power changes more frequently than the trend growth rates in government spending and taxes shifts of political power are often preceded by rhetoric about meeting needs or cutting taxes which post election performances rarely match yet changes in the size of government up and down occur on average the size of government measured by the share of taxes or spending to output has increased in many countries during the past century but changes in size occur at diffrent rates and at times the relative size of government declines

pricing risk adjusted deposit insurance an option based model this paper presents a methodology for arriving at empirical estimates of deposit insurance premiums from market data by using isomorphic relationships betweeen equity and a call option and insurance and a put option the data utilizes the market value of equity to solve for the asset value and its volatility market perceptions of fdic bailout policies are explicitly modeled so as to eliminate the bias in inverted values of assets and their volatility sensitivity analyses are performed to show that rank orderings based on premiums are robust to changes in specification thus facilitating allocation of aggregate premium across banks while economists have long argued in favor of risk adjusted deposit insurance as both more equitable and more efficient than the current system of flatrate premiums various recent developments have further contributed to an increasing dissatisfaction with the current system first both the banking industry and the government seem to be tending to the view that deregulation of the banking industry would be necessary in order to meet more sophisticated future demands on the industry as well as desirable as a policy means of stimulating greater competition among banks moreover a sudden rise in the incidence of bank failures 1 and the vulnerability of the u s banks to the socalled international debt crisis have served to bring to the fore concern about the health of the banking industry in the absence of deposit insurance riskier banks will be able to attract deposits only at higher rates and these higher costs of funding serve as built in market regulated incentives to limit excessive risk taking by banks as introduction of deposit insurance makes deposits equally risk free across banks these incentives disappear and regulation and close supervision of the banking industry must necessarily replace them as deterrents to excessive risk taking thus when insurance is offered at a flat premium regulation is designed to ensure that the risk posed to the insurer both asset and financial risk is appropriately uniform

government growth in the twenty first century public choice explanations of government growth fall into three main categories budget maximization theories rational choice models and path dependent models like the ratchet hypothesis the strengths and weaknesses of these theories as explanations for government growth are considered along with some facts about the actual growth of government to conjecture about its trajectory in the twenty first century government size seems to have been constrained in the past primarily by its ability to raise revenue growth rates in the new century thus appear to depend on factors constraining government s ability to continue to expand the tax base

deposit insurance reform what are the issues and what needs to be fixed abstract the current problems in the commercial banking industry have led to widespread calls for reform of the deposit insurance contract on the grounds that it promotes moral hazard we review the empirical evidence for the significance of moral hazard as an important cause of the present crisis we then evaluate various reform proposals grouped into two broad classes proposals that seek to impose greater discipline on bank stockholders and proposals to increase the disciplinary role of bank debtholders finally we identify some issues that have received inadequate attention in the literature on bank regulation

state government expenditure determinants and tax revenue determinants revisited the primary aim of the research was to test the general hypothesis that many institutional and political variables affect fiscal outcomes that the preferences of public officials and the decision processes used to act on those preferences matter state government data state only not state and local from 1980 1985 and 1990 were used to specify state tax revenue and expenditure models a previous merrifield 1991 state tax revenue model identified many significant institutional and political variables but it was based only on 1985 data 49 observations the larger data set 147 observations including better data for some of the variables indicated that most of merrifield s 1991 findings are robust the state expenditure models facilitated a second test of the general institutional and political variable hypothesis as well as the hypotheses about specific variables the expenditure model also facilitated comparisons of expenditure and tax determinants and comparisons with results published in the literature though there are some noteworthy differences between the expenditure and tax models the expenditure models also supported many of the institutional and political variable hypotheses

cost disease versus leviathan explanations of rising government cost an empirical investigation in this paper we reexamine the apparently conflicting empirics of borcherding et al 1977 versus those of barry and lowery 1984 the latter designed to test the cost disease versus bureau voting power hypotheses on us citibase annual data between 1947 to 1979 was retested for the longer period available through 1989 second and more importantly we isolate and test for the presence of a second channel for the exercise of bureaucratic power that channel is the bureau s ability to use its information advantage to capture a portion of newly generated government rents through higher personal benefits such as higher salaries such an analysis following west 1991 requires first that those factors generating new rents for government actually result in successful bureaucratic rent seeking in the form of higher compensation levels in addition the analysis requires that these artificial increases in bureaucratic wages show up as significant determinants of the higher cost of providing government services incorporating a constructed kau rubin variable into the barry and lowery database is then shown to improve the predictive power of both the cost disease and bureaucratic power hypotheses for us annual data between 1948 and 1989

did women s suffrage change the size and scope of government this paper examines the growth of government during this century as a result of giving women the right to vote using cross sectional time series data for 1870 1940 we examine state government expenditures and revenue as well as voting by u s house and senate state delegations and the passage of a wide range of different state laws suffrage coincided with immediate increases in state government expenditures and revenue and more liberal voting patterns for federal representatives and these effects continued growing over time as more women took advantage of the franchise contrary to many recent suggestions the gender gap is not something that has arisen since the 1970s and it helps explain why american government started growing when it did

incorporating transport cost in the lot size and pricing decisions with downward sloping demand abstract there is an increased emphasis in supply chain management on making all costs transparent this has led to greater scrutiny of freight costs by the resellers who want to control their inbound logistics costs an astute reseller may opt for paying freight when he sees an opportunity for savings in some cases a supplier may only sell on conditions of fob origin in this paper we consider a reselling situation wherein the final demand is sensitive to the selling price and the reseller is responsible for paying for the freight given that transportation costs can be almost 50 of the logistics cost s r swenseth m r godfrey int j prod econ 77 2002 113 there is a need for coordination between the reseller s purchasing function and his pricing policy in this study we formulate a model for determining the optimal lot size and the selling price for the reseller existing models for the problem have treated freight breakpoints in the same way as price breakpoints in a quantity discount schedule in doing so they have ignored the option of over declaring the weight of the shipment which is routinely available to the buyer shipper in practice in this paper we assume that the reseller has such an option we also assume that in setting the size of the order shipment the reseller can choose between less than full truckload or full truckload shipment

explaining government growth in the u s states despite the explosive increase in the research program on government growth in recent years little work has been done on government growth disaggregated to the subnational level i examine the empirical validity of five competing models of government growth for the fifty u s states from 1945 to 1984 wagner s law fiscal illusion party control bureau voting and intergovernmental grant government size is defined in terms of state government spending as a proportion of total state economic output with separate implicit price deflators being employed for the public and private sectors based on a longitudinal test of these competing models the analysis uncovers strong empirical support for the bureau voting and intergovernmental grant models moderately weak support for the wagner s law model and virtually no support for the fiscal illusion and party control explanations these findings have important implications for the study of government growth in general and more specifically in the states

testing theories of real government size u s experience 1959 89 in a recent article west 17 argued that the existence of so many strands of analysis attempting to explain the growth of government calls ultimately for one consolidated or generalized theory accordingly he produced a model that integrated four such theories two on the cost side and two on the demand side the purpose of the present paper is to derive empirical measures of all four theories using u s data for the period 1959 1989 the presumption is that each one separately might contribute in its own way to a composite explanation of government growth and that what is currently most needed is a set of jointly determined empirical estimates showing relative importance while all our measures of government size consolidate federal state and local government expenditures two other measurement issues should be emphasized since they distinguish our work from other contributions to this literature the government component of our main dependent variable the real size of government is measured in two different ways the first uses the national accounts definition of government purchases which excludes transfer payments from the measure of size whereas the second includes final purchases plus net government transfer payments since we are interested in the effects of changes in the productivity of supplying government services the first of these definitions is expected to be more relevant and is so used as the basis of our empirical work however since there is a sense in which changes in the productivity of government may affect the output of transfers we also use the second definition to produce a more complete empirical exercise the other distinguishing feature of our analysis is that both definitions of government size are analyzed in real as distinct from the more usual nominal share of government in gross domestic product gdp this distinction becomes immediately more striking when it is pointed out that while most authors hitherto have attempted to explain the phenomenon of positive growth in the ratio of nominals over the past half century the ratio of reals has actually fallen for most of our

on the political economy of welfare expansion a comparative analysis of 18 advanced capitalist democracies 1960 1971 this article elaborates the thesis that economic growth and various types of collective action by class linked actors determine the expansion and decline of welfare spending in rich capitalist democracies our multivariate model of this thesis specified to 1960 1971 growth rates in direct cash transfer payments as proportions of gross domestic product is supported strongly by regression analyses these indicate that economic growth notably facilitates transfer payment growth they also suggest that rightist party participation in government notably dampens welfare expansion while leftist centrist and christian democratic party participation in government are conducive to welfare expansion and they suggest that the political influences of both unions and large industrial corporations are conducive to growth in transfers payments as well in addition state authorities appear to augment welfare spending in response to working class protests strike activity and capital investment disinvestment activ

considerations of cost trade offs in insurance solvency surveillance policy abstract we propose a process for identifying potentially insolvent insurers on a cost effective basis a loss cost function is developed such that the effectiveness of monitoring is maximized relative to a cost constraint the loss cost function is supported by a model that provides a rank ordering of financial institutions according to their probability of insolvency when tested against a full sample of property liability insurance companies the procedure provides information critical to maximizing the effectiveness of regulatory resources available for solvency surveillance and performs well as a predictor of insolvency likewise the rank ordering of insurers overcomes an estimation problem critical to establishing risk adjusted guaranty assessments

erratum to incorporating transport cost in the lot size and pricing decisions with downward sloping demand international journal of production economics 95 297 305 abstract we correct our earlier formulation abad p aggarwal v 2005 incorporating transport cost in the lot size and pricing decisions with downward sloping demand int j prod econ 95 297 305 in which the carrying cost was assumed to be proportional to the purchase cost since the buyer reseller is responsible for paying for freight the item value for estimating carrying cost should include not only the purchase cost but also the per unit transportation cost hadley g whitin t 1963 analysis of inventory systems prentice hall englewood cliffs nj tersine r j barman s 1994 optimal lot sizes for unit and shipping discount situations iie transaction 26 2 97 101

capital regulation and deposit insurance abstract a model of deposit insurance in which the bank closure rule can systematically deviate from the economic insolvency condition used in earlier models is developed simulation of that model for plausible parameter values suggests that the failure to close banks on a timely basis has a profound effect in increasing the insurer s liability the implications of these results for capital regulation are discussed

the causes of government expenditure growth a survey of the u s evidence abstract the growth of government budgets can be broken down into a institutional and institutional components the former component the familiar substitution income and population public goods tax sharing effects is estimated to contribute about two fifths of the growth of u s government spending the latter component rent seeking political redistributions bureaucracy and perceptual informational impedimentia is important too but an exact imputation cannot be asserted given the state of the art in empirical public choice theory the cross effects on spending of the growth of regulation and tax preferences or tax expenditures though interesting is not pursued

why can modern governments tax so much an agency model of firms as fiscal intermediaries we develop an agency model explaining why third party information reporting by firms makes tax enforcement successful while third party reporting would be ineffective with frictionless collusion between firms and employees collusive evasion is impossible to sustain in firms with many employees and accurate business records as any single employee may reveal evasion we embed our agency model into a macro model where the number of employees grows with development showing that the tax take evolves as an s shape driven by changes in third party information we show that our model is consistent with a set of stylized facts on taxation and development

a positive model of tax structure the model of tax structure developed in this paper is one in which the composition of revenues and the structure of specific taxes arise naturally as the result of self interested political behavior it is assumed that political agents choose tax structure so as to minimize the political costs or expected net loss in votes associated with raising a budget of given size several hypotheses concerning the nature of political cost functions are developed and applied to an explanation of the differences among u s states in their reliance on income taxation the empirical application emphasizes differences in political constraints across jurisdictions in the belief that much can be learned about the choice of policy instruments by studying structural adjustments in response to varying constraints the paper discusses how the proposed approach differs from or is consistent with that adopted by other authors and how the estimating equation relates to other empirical research in the literature

fiscal decentralization and the size of government a european country empirical analysis this article is an original contribution to the understanding of the relationship between fiscal decentralization and government size using a panel data set of the eu 15 countries we analyse the effect of decentralization on aggregate national and subnational government sizes by separating the long run effects of decentralization from its short run dynamics in the long run tax autonomy reduces central expenditure but increases and to a greater extent subnational public expenditure leading to higher aggregate public expenditure we find also that vertical imbalances tend to increase the sizes of subnational national and aggregate governments

deadweight costs and the size of government abstract we provide a model for analyzing effects of the tax system and spending programs on the determination of government spending and taxpayer welfare an improvement in the efficiency of either taxes or spending would reduce political pressure for suppressing the growth of government and thereby increase total tax revenue and spending we demonstrate the similarity of the political responses to revenue shocks spending shocks changes in tax efficiency and changes in spending program efficiency empirical analysis of oil shocks intergovernmental grants and other autonomous changes in taxes or spending indicates that cause and effect is not only from spending to tax structures

costs of taxation and the size of government existing theory on the form of government suggests that a parliamentary system promotes a larger size of government than does a presidential system this paper extends the existing theory by allowing for distortionary taxation a main result is that if taxation is sufficiently distortionary the parliamentary system may promote a smaller size of government than the presidential system the proposed mechanism appears consistent with several empirical patterns in the data that cannot be explained by other theories

bureaucratic corruption as a constraint on voter choice this paper has attempted to explain variations among countries in the tax level in the importance of progressive taxes and transfers and in the after tax share of middle income groups particular attention was paid to the declines in each of these variables which are observable in cross section data in the intermediate ranges of development it was argued that these phenomena are difficult to explain by variations in the demand for public spending or in the degree of tax evasion

the growth of government in the united states an economic historian s perspective abstract this paper first outlines the salient features of the growth of government in american history secondly it offers a neoclassical explanation of that history in which increasing specialization and division of labor brought on by the scientific technological revolution of the nineteenth century drastically altered the demand for and supply of government finally it argues that institutions matter and describes the way the particular structure of governments was important in the timing and pace of its growth

debt and tariffs an empirical investigation of the evolution of revenue systems abstract this paper presents a theoretical framework where government chooses fiscal structure so as to maximize political support and where the evolution of fiscal systems is determined by changing economic political and administrative factors estimating equations are derived and the model is used to explain the development of revenue structure in canada from 1871 to 1913 a period when major revenue sources consisted of the tariff debt and excises the empirical analysis distinguishes between government plans and ex post observations of public revenues and places particular emphasis on the derivation of hypotheses linking economic political and administrative variables to revenue structure

the size of government most research on the causes of growth in government expenditure has focused on the demand for government services in this paper we argue that in fact this growth may have occurred because of changes in supply changes in technology leading to increased specialization and thus increased opportunity costs of self production have led to increased market production and increased record keeping also female labor force participation has increased both of these factors serve to reduce the efficiency cost of collecting taxes if the demand for government spending has not changed this increase in supply would lead to a larger public sector we estimate a system of simultaneous equations for the period 1929 1970 incorporating this hypothesis and the results are consistent with the theory we are able to explain virtually all of the growth of government increases in female labor force participation seems to be a very important variable in this explanation

the growth of government in italy evidence from 1861 to 1979 that the public sector has grown both in absolute terms and relative to the rest of the economy is an undisputable fact that both growth rates have accelerated in recent history is also an unchallenged fact more cautious must we be about why these trends have occurred and are persisting we have tested three partially competing theories of government growth using italian annual data from 1861 to 1979 and assessed that the redistribution model explains the facts better than either the public goods model or the specialized interest hypothesis although the latter tells the most convincing story about the causes underlying transfers to firms we have also tried to discriminate between two competing views of a politician the value free intermediary found in the median voter literature and the entrepreneur emphasized in the theory of agency costs the bits of evidence we gathered are more consistent with a politician entrepreneur than a politician intermediary

the cost disease and government growth qualifications to baumol changes in real world wage movements across sectors account for about a third of the rise in the cost of u s government services between 1959 and 1989 while relatively slower productivity in the public sector accounts for the remaining two thirds even though it is slower however the productivity record still is positive even in the labor intensive government sector consequently baumol argues that the public s likely future objection to necessary increases in the share of expenditures over the next 50 years will betray a fiscal illusion unless policymakers take pains to dissolve it but slower productivity may be equally due to the structural organization removing public monopolies reducing bureaucracies and undertaking privatization in education for example are other policy options that could radically change the productivity record meanwhile in his recent calculations of dramatic government expenditure increases expected in the next half century baumol omits reference to the marginal welfare cost of public funds which on our estimates will increase at least ten times to reach 1 71 by the year 2040

solvency regulation and the property liability insurance cycle i introduction the supply of property liability insurance in the u s appears to be extraordinarily cyclical liability insurance lines in particular fluctuate between soft markets of stable premiums and low returns to insurers and tight markets or insurance crises of rising premiums cut backs on availability and tight limits on coverage the soft markets of the early 1970s and early 1980s were followed in 1975 and late 1984 by sudden premium increases of hundreds of percent for some policies 1 in mid 1987 early july according to some reports the market began to turn around again premiums fell by as much as 40 percent and coverage limits increased up to 500 percent compared to the previous year 2 in a previous paper winter 1988 i addressed the puzzle of why some lines of insurance are apparently so vulnerable to fluctuations when conventional economic theory predicts that premiums will change only one for one with the present value of expected claims this paper examines a specific allegation raised during the most recent insurance crisis that existing regulation of property liability insurance exacerbates market fluctuations the principal enforcement role of state insurance commissions is to monitor the financial condition of insurers commissioners ensure that financial solvency standards are met so that policyholders are protected from the consequences of bankruptcy more precisely the regulations protect state guarantee funds which assume the liabilities of bankrupt insurers the regulators examine a number of financial ratios but the dominant measure of financial leverage is the ratio of the current volume of business to net worth or surplus insurers are restricted by state commissioners from writing more insurance than considered justified by their current net worth in order that realized policy claims can be met even if they turn out to be substantially higher than revenues would cover in determining the ratio of quantity of insurance to net worth regulators face an aggregation problem a sensible measure of the total quantity of insurance sold by a firm does not exist the total number of policies sold for example is meaningless insurance commissioners therefore use premium revenues as a measure of the volume of business historically insurers were allowed a value of two for the ratio of premiums to net worth before attracting the scrutiny of insurance commissioners according to a standard text on insurance published in 1982 for more than 40 years insurance commissioners have used the 2 1 rule as an indicator of the maximum safe premium volume that property and liability insurers might write the rule is that the premium volume should not exceed two times policyholder surplus that is net worth huebner et al 1982 the 2 1 rule was referred to as the kenney rule after the commissioner who first proposed it the standard for a safe premium to net worth ratio has changed over time insurers in most states are now considered to meet solvency requirements when the ratio of premiums to net worth does not exceed three or four as a measure of financial leverage in solvency regulation the premiums to net worth ratio has perverse effects suppose that demand is inelastic and that a supply shock to the market leads to an increase in premiums and hence revenue because the ratio of premiums to net worth has increased regulatory pressures on insurers to maintain safe solvency standards will lead to even tighter supply this regulatory pressure will lead to a further increase in premiums and revenue instead of signalling a more conservative leverage position the ratio of premiums to net worth increases leading to a more negative assessment by the regulator of the insurers financial viability and hence to further pressure to raise premiums

how powerful are public bureaucrats as voters empirical evidence is collected and discussed regarding the influence of public bureaucrats on government sector outcome in their capacity as consumer voters it is necessary to isolate the specific effect of working in the public sector compared to other occupations on voting participation and on the probability to support an increase in the public budget for a balanced evaluation of public bureaucrats power other forms of their influencing the government sector outcome need to be taken into account

redistributive politics with distortionary taxation abstract this paper proposes a first step towards a positive theory of tax instruments we present a model of redistributive politics that extends those of myerson r myerson incentives to cultivate minorities under alternative electoral systems amer polit sci rev 87 1993 856 869 and lizzeri and persico a lizzeri n persico the provision of public goods under alternative electoral incentives amer econ rev 91 2001 225 239 two politicians compete in terms of targeted redistributive promises financed through distortionary taxes we solve for the case of both targetable and non targetable taxes we prove that there is an imperfect efficiency targetability trade off on the tax side politicians prefer targetable taxes over non targetable ones especially when the latter are less efficient yet targetable taxation is always used even when it is very inefficient compared to non targetable taxes

partisan politics and public finance changes in public spending in the industrialized democracies 1955 1989 this paper evaluates the role that partisan politics plays in altering public spending levels the analysis covers over three decades of data on the developments of the public sectors in 16 oecd countries the results of the analysis lend firm support to the partisan politics model of special note is the distinction between the electorate and the government ideological preferences and the dominant role that the former plays the results also suggest contrary to conventional wisdom that partisan political influences have not been eliminated with the tightening of linkages to the international economy

optimal bank reorganization policies and the pricing of federal deposit insurance optimal dynamic regulatory policies for closing ailing banks and for deposit insurance premia are derived as functions of the rate of flow of bank deposits and interest rate on deposits the economy s risk free interest rate and the regulators bank audit administration costs under competitive conditions the threshold assets to deposits ratio below which a bank should be optimally closed is shown to be greater than or equal to one optimal deposit insurance premia and probabilities of bank closure are shown to be nondecreasing in the bank s risk on investment and nonincreasing in the bank s current assets to deposits ratio should regulatory agencies close reorganize an ailing federally insured financial institution if so when the recent record rate of failures of savings and loans associations s ls has renewed the urgency of this question the regulatory agencies are empowered but not required to reorganize financial institutions that are statutorily insolvent i e have zero or negative regulatory net worth recently regulators have in many instances permitted insolvent financial institutions to remain in operation 2 also while debating on the increase of the proposed funding of the federal deposit insurers the u s congress argued whether it would be desirable and if so when to close more s ls thus when regulators should close a troubled financial institution has become a major question of bank regulatory policy while the existing academic literature provides powerful insights into the structure and pricing of the insurers liability this literature offers very little guidance regarding the timing of bank reorganizations 3 indeed to the best of our knowledge the value of the federal

optimal taxation and optimal tax systems the theory of optimal taxation has for the pas two decades been the reigning normative approach of taxation this paper argues that in its current state optimal tax theory is incomplete as a guide to action concerning many critical issues in tax policy it is incomplete because it has not yet come to terms with taxation as a system of coercively collecting revenues from individuals who will tend to resist the coercive nature of collection taxes implies that the resource cost of implementing a tax system have been and will continue to be a critical determinant of appropriate tax policy the paper first presents the three cornerstone propositions of optimal tax theory and then it discusses the influence of these propositions on recent tax policy developments it concludes by sketching an alternative to optimal taxation called the theory of optimal tax systems which embraces the insights of optimal taxation but also considers the technology of raising taxes and the constraints placed upon tax policy by that technology the optimal tax systems perspective is shown to shed light on the choice of tax instruments the problem of tax evasion and the appropriate tax treatment of capital income this abstract was borrowed from another version of this item

explaining the growth of government in sweden a disequilibrium approach previous studies aimed at explaining the growth of government in a particular country have failed to distinguish between explanatory variables acting on the supply and demand side respectively alternatively they have tested one explanation at a time implying explanatory equations that are misspecified in addition no allowance has been made for the fact that the interaction between supply and demand can hardly be assumed to be a self equilibrating process where the price of public goods and services adjusts to equate the two instead a framework of disequilibrium seems more appropriate for the analysis of the growth of government

studying the role of political competition in the evolution of government size over long horizons here we argue for the use of cointegration and error correction analysis to combine economic factors that are nonstationary with political factors that are stationary into an empirical model of the evolution of public policy over long periods the approach is applied to disentangle the contributions of economics and politics to the evolution of public expenditure by the government of canada over 130 years political competition emerges as the primary political factor affecting government size

interest groups and the size of government the results of the previous section estimates of a three equation model from 23 observations must obviously be regarded as tentative the consistent positive relationship between number of interest groups and size of government observed with changing sets of included independent variables changing samples of nations and treating the number of interest groups as either exogenous or codetermined does imply rather unequivocally that interest groups are able to influence public policies in such a manner as to lead to increased government size beyond helping to reinforce this conclusion the results of the previous section should be regarded as first steps in the development of a model of the polity that can explain participation in the political process by interest groups and citizens as well as the size of government

trending economic factors and the structure of congress in the growth of government 1930 2002 we investigate the role of congress in the growth of federal public expenditure since 1930 building on the work of kau and rubin public choice 113 389 402 2002 the model incorporates majority party strength and the extent of party control of congress in addition to the median ideological position of elected representatives we first provide estimates of the relative importance of the state of congress and of trending supply and demand side economic factors in the evolution of federal spending the resulting models are then used to simulate the consequences of the radical and historically unprecedented shift to the right of congress in 1994 95

searching for leviathan an empirical study in several papers and a recent book geoffrey brennan and james buchanan 1977 1978 1980 have put forth a striking and controversial view of the public sector drawing by analogy on the conventional theory of monopoly in the private sector they envision a monolithic government that systematically seeks to exploit its citizenry through the maximization of the tax revenues that it extracts from the economy from this perspective they develop a fiscal constitution whose central purpose is to constrain leviathan by limiting in various ways its access to tax and other fiscal instruments while the leviathan hypothesis has been the source of lively debate and a wide range of policy proposals it has not been the subject of much systematic empirical work or testing this is a matter of some importance since the policy implications of the leviathan view are disturbing to put it mildly in particular brennan and buchanan virtually stand on their heads many of the basic theorems in public finance for an efficient and equitable tax system if in fact the leviathan view is an inaccurate depiction of the functioning of the public sector the introduction of their policy proposals is likely to make a sorry mess of the fiscal system the leviathan model does however have some straightforward implications for observable fiscal behavior it is the purpose of this paper to examine one of these testable implications brennan and buchanan stress that fiscal decentralization is itself a powerful constraint on leviathan competition among governments in the context of the interjurisdictional mobility of persons in pursuit of fiscal gains can offer partial or possibly complete substitutes for explicit fiscal constraints on the taxing power 1980 p 184 such competition among governments in a federal system that places heavy reliance on local fiscal decisions will greatly limit the capacity of leviathan to channel resources into the public sector in short as indicated by the epigraph to this paper the leviathan model implies that other things equal the size of the public sector should vary inversely with the extent of fiscal decentralization 2