Edward K. Smith

English

Research Papers in Economics

This PDF is a selection from an out-of-print volume from the National Bureau
of Economic Research
Volume Title: Economic Research: Retrospect and Prospect Vol 4: Public
Expenditures and Taxation
Volume Author/Editor: Carl S. Shoup
Volume Publisher: UMI
Volume ISBN: 0-87014-253-4
Volume URL: http://www.nber.org/books/shou72-1
Publication Date: 1972
Chapter Title: Foreword to "Economic Research: Retrospect and Prospect
Vol 4: Public Expenditures and Taxation"
Chapter Author: Edward K. Smith
Chapter URL: http://www.nber.org/chapters/c4284
Chapter pages in book: (p. -5 - -3)Foreword
Every discipline is subject to having too much claimed for it by its
practitioners. Public finance may be no exception, but a reading of this
volume will lead many to conclude that the subject matter is so broad,
up to and including general equilibrium models, that many of its practi-
tioners have claimed too little rather than too much for it. Agendas for
research are revealing, for the larger the agenda, the greater the likeli-
hood that the subject matter impinges on, or isinclusive of, other
disciplines. This is as true of a subdiscipline of a science as of the science
itself. A cynic might charge that agendas are large because they are
directly proportionate to the ignorance expressed. A more realistic view,
and one to which most of us would subscribe, is that, as a discipline
expands its knowledge, it simultaneously increases the area of new
and unanswered questions. The expansion of knowledge increases
the penumbra of the unknown at the frontiers, for the frontiers have
widened.
The essential impression one gets from this National Bureau of
Economic Research Fiftieth Anniversary Colloquium is that the agenda
for quantitative research in taxation and government expenditures has
greatly widened and that both the new and the old questions need to
be probed more deeply. In the social sciences such a conclusion is not
unexpected. To some, feelings of doubt and uncertainty also enter. To
others, the paradigms have been or will need to be modified; 'the subject
matter is not now what it was thirty or more years ago. The "tired
topics" must give way to the new.
This colloquium, dedicated to the late Harold Groves, a distin-
guished practitioner of the discipline who was long associated with the
National Bureau, called upon Carl Shoup, of Columbia University and
the National Bureau, to review the field and suggest an agenda for
future research. Shoup restricted his review to quantitative research, a
restriction that excludes theoretical contributions unaccompanied by
quantitative information. Shoup uses the term quantitative, rathef than
empirical, because "few public finance studies of facts and figures
formulated empirical statements in the sense of refutable hypothesesxvi Foreword
subject to testing by appeal to the facts." The reader will discover that
while such a restriction greatly limits, it by no means denudes, the sub-
ject at hand. The agenda for research is still larger than the resources
available would permit us to exploit.
Shoup examines two tax topics at length: the distribution of taxa-
tion by income classes, and the shifting and incidence of taxation. He
summarizes many others, chiefly in terms of the present state of quanti-
tative knowledge. These include effects of taxes on investment and busi-
ness behavior and on the supply of labor; the excess burden of taxation;
and time series and cross-section studies of tax system characteristics.
Another section of his paper examines government expenditures as they
have been researched to discover "laws" of expenditures, government
services as outputs, and efficiency of expenditures.
Shoup appraises the need and prospects for quantitative research
and possible outlets for such work. The National Bureau's reentry into
the public finance field on a fairly large scale is predicted, with empha-
sis on the closed model, e.g., studies of tax The author is
aware that there may be some delay, for "even the simplest of such
projects are likely to prove too much for any small group of individual
scholars.. .ontheir own." Certainly economic research has suffered
from the inadequate scale of individual investigations. Shoup's hope
that the future will be different is shared by his coworkers.
In another section Shoup reviews the impact of past studies on the
formulation of policy, and the possible policy impact that may be en-
visioned for the future. He concludes that for distribution studies, the
policy impacts have been negligible, perhaps because policy makers felt
that too many institutional restraints had to be overcome. Further studies
will have to show what happens to the distribution of income under
postulated tax changes along with imputation of benefits from govern-
ment services and subsidy payments. Subsidies seem "to have been
subject to very little serious quantitative analysis in terms of incidence."
On the other hand, there have been many studies of the impact of tax
changes by alternative programs. They have had a substantial role in
policy making, but unfortunately most of them are produced within the
government and remain unpublished. Such studies have neglected the
incidence of taxation, however.
Richard Musgrave and James Buchanan are the discussants of
Shoup's paper. Professor Buchanan feels that traditional public finance
has been transformed into "one of the most exciting areas in political
economy," for "our paradigms have been modified" and today publicForeword xvii
finance is "public economics." Here we see the tendency to claim much
for a discipline, as I commented earlier. Consequently, Buchanan does
not think Shoup has included enough in his review, and feels he should
have excluded some of the "tired topics." Institutionalists are recalled
to duty, especially to bring a greater degree of realism to econometric
models. On the whole, Buchanan thinks Shoup has led us down the
wrong path.
Professor Musgrave is willing to let the flowers bloom. Many paths
can and should be tried. Large models may bring disillusionment, but
the future lies in econometric work. Both big and small projects can be
productive. We need to work on the analysis of bureaucracy, as Bu-
chanan wants, as well as of tax incidence, as Shoup advises. We need
also to measure the fiscal capacities and needs of various jurisdictions,
the incentive effects of negative income taxation, and the substitution
of value added taxes for corporate taxes.
The research agenda grows larger. The reader may add (or sub-
tract) his own topics for investigation as he reads this volume. It is to
be hoped that he will find new insights for his own agenda, choosing
his own path, and no doubt increasing the breadth and depth of that
which we call public finance. Walter Heller, our moderator, called it a
"vast unfinished business." That it is. In the end, Professor Buchanan
withdrew the word "tired."
I opened the session by introducing Walter Heller to our Washing-
ton audience. The colloquium closed with a dinner address on revenue
sharing by the Hon. Paul A. Voicker, Under Secretary of the Treasury
for Monetary Affairs. EDWARD K. SMITH
Vice President

Economic Research: Retrospect and Prospect Vol 4: Public Expenditures and Taxation

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