Theories of Public Sector Growth

Abstract

Chapter 2 outlined the ‘market failure’ rationale for government intervention. The optimal degree of intervention is clear in principle: only that which is required to offset allocative inefficiency. In principle the economically optimal levels of subsidy and taxation can be calculated in respect of positive and negative externalities, etc. Despite ‘second best’ problems, it is generally accepted that governments should promote competition as far as possible. However these economic prescriptions are insufficient as an explanation of the origins and growth of the public sector. This chapter examines the various economic theories of public sector growth, not all of which make use of market failure concepts.