Government expenditures as a citizens'evaluation of public output : public choice and the benefit principle of taxation

Abstract

Combining elements from the theories of public choice and benefit taxation, the author develops a framework in which private citizens can evaluate public activities. Why, and under what circumstances, do bureaucrats increase the size of the public sector and the amount of public spending in their own self interest? What does the private sector think public output should be, what is actual public output, and how does the private sector evaluate that output? The author applies the theoretical results of an attempt to answer these questions in four Central European countries (Czechoslovakia, Hungary, Poland, and Slovenia), using actual data for 1989-91 and projections for 1992. Interpreting indirect evidence, he shows that the private sector would prefer less government activity in all countries, from a low of 5 percent less public spending (in Poland) to a high of one-third less (in Slovenia). If those governments were to follow those guidelines, their spending-to-GDP ratios would more closely resemble the 1987-89 average for a selected group of European market economies. The author also introduces a more rigorous, if not necessarily more objective, approach to determining optimal government spending. This approach requires little information, but uses a static model and requires faith in the direction of causality for some key variables. To the extent that one can accept those limitations, the model may be a useful operational tool in public spending evaluation.Public Sector Economics&Finance,National Governance,Economic Theory&Research,Environmental Economics&Policies,Fiscal&Monetary Policy