A Paretian Approach to Fiscal Decentralisation and Economic Growth: a Preliminary Investigation of the Australian Experience

Abstract

Even though important analytical concepts named after Vilfredo Pareto were, and still are, employed in public finance theory, Pareto was actually a harsh critic of the Italian public finance tradition, especially the classic studies on public goods and the reliance on the benefit principle when analysing fiscal activity. Instead, he considered the primary feature of the fiscal phenomenon to be the redistribution of economic goods resulting from taxes, expenditure and debt, and suggested that this phenomenon was more amendable to sociological analysis than pure economic analysis. A largely overlooked aspect of Pareto’s Trattato di Sociologia Generale is the discussion of the relationship between social equilibrium and long period growth. This study is an exploratory ‘fiscal sociology’ that extends Pareto’s proposition on the relationship between economic growth and social equilibrium by developing a range of ‘economic’ and ‘sociological’ propositions on the long period relationship between fiscal decentralisation and economic growth. These propositions are investigated with reference to Australian fiscal federalism in the twentieth century.Economic Growth, Fiscal Decentralisation, Fiscal Sociology, Gino Borgatta, Vilfredo Pareto