This essay Why Do Governments Find It So Hard To Control Public Expenditure? has a total of 2473 words and 12 pages.
Why Do Governments Find It So Hard To Control Public Expenditure?
Since the 1970's rising public expenditure has become a politically
salient issue, with the focus being on the difficulties experienced in trying to
control it. In order to answer a question concerning why governments find it
hard to control public expenditure it is first necessary to look at the reasons
for the growth in public spending. There are three approaches which attempt to
give reasons for growing public expenditure which I intend to scrutinise, these
are, the societal system approach, the political system approach and the
governmental system approach. An evaluation of these approaches should in turn
shed light as to why governments find rising public expenditure hard to control.
Following this approach which gives a wide outlook on the problems facing
governments in controlling public expenditure, I will look at the post 1979
conservative government as it in particular targeted controlling expenditure
upon taking office.
Under the societal system approach one reason why a growth in public
spending can be seen to have occurred is due to Wagner's ?law of increasing
state activity.' Wagner's claim is that as per capita real income increases in
particular nations, they will spend a higher proportion of national product
through government. As Wagner's reasons for increased public expenditure tend
to be centralised around industrialisation and its associated effects it is not
surprising to find that he thought the density of urban living would increase
social frictions to such an extent that the government would be called in to
handle it. That is to say, urban living would result in the need for enhanced
police protection and other forms of government regulation. Wagner also
believed that with growing industry certain investments would require so much
capital that the state would have to provide it. He thought there would also be
public goods that may not be in the interests of an entrepreneur to provide.
There are counter arguments to Wagner's suggestions, the first of these
is that it could be argued that increased density would provide opportunities
for economies of scale. Thus, the proximity of people to one another could
result in networks of personal support, lessening the need for public services.
Secondly, contrary to Wagner's arguments for public good provision by the state,
it is possible to show other countries that either do without it, or provide for
user charges. This shifts the burden from general revenues to those who benefit
Another reason for rising government expenditure under the societal
system approach is expressed via Tarschy's ?demonstration effect.' He suggests
that the coming of television "has led to increased awareness of the standard of
living enjoyed by other segments in society and even in other parts of the world.
As a consequence, expectations and pretensions mount, and people get
increasingly sensitive to, injustices in the distribution of public goods." But,
if people become aware of goods they would like, then why don't they work harder.
Peacock and Wiseman (1961) have suggested an alternative hypothesis
known as the ?displacement effect', in which they believe public expenditure is
limited by available revenues. They suggest that we have seen increases in
revenue occurring because after the two world wars the level of taxation,
although falling down from the enormously high levels in wartime, did not recede
back to the old level. Thus their hypothesis is that major crises expand the
public tolerance for increased levels of taxation. An argument against this
hypothesis is that why did expenditure continue to rise in the 1960's when there
was no displacement effect.
Another attempt at explaining rising public expenditure occurs under the
political system approach which proposes that pressures from within the
political system itself is responsible. Anthony Downs suggests that public
spending should be seen as a function of party competition, in which each party
pursues policies it thinks the public wants. The government will seek to set
spending and tax levels at a point which will give them the greatest support.
They will therefore attempt to maximise the visible effects of spending and try
to disguise the costs of taxation to the public. According to Anthony Downs
this will result in the size of a governments budget being less than optimal.
"In so far as taxation can be concealed from the electorate, the government
budget will tend to be greater than the correct one. Voters will underestimate
the costs they are paying for special benefits received and parties will build
this bias into their budget." The problem with this approach is that although
it is useful in explaining the way in which government raises and spends money
it isn't very helpful in explaining the growth in expenditure.
There is also the party ideologies
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Topics Related to Why Do Governments Find It So Hard To Control Public Expenditure?
Public finance, Public expenditure, Government spending, Public good, Barnett formula, Aggregate expenditure, salient issue, public expenditure, governmental system, system approach, income increases, forms of government, frictions, public spending, police protection, public goods, industrialisation, urban living, conservative government, government regulation, wagner, entrepreneur, proportion, governments, density, extent
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