Abstract
A number of explanations are commonly presented in public finance texts as reasons why government intervention in the economy will improve performance. This chapter questions the validity of each of them. The chapter examines the merit goods argument, equity considerations, growth and development, and stabilization, and finds the arguments offered in their behalf to be unpersuasive. Public finance as presented in textbooks is seen as relying on rather dubious normative arguments.
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Notes
- 1.
A.B. Atkinson and J.E. Stiglitz, Lectures on Public Economics, New York, McGraw- Hill, 1980; A. L. Auld and F.C. Miller, Principles of Public Finance: A Canadian Text (Toronto: Methuen, 1982); J.F. Due, Government Finance: An Economic Analysis, Homewood (Illinois), Irwin, 1963, third edition: Richard A. Musgrave, Peggy B. Musgrave, and Richard M. Bird, Public Finance in Theory and Practice, first Canadian edition (Toronto: McGraw-Hill Ryerson, 1987); Douglas J. McCready, The Canadian Public Sector (Toronto: Butterworths, 1985); C. S. Shoup, Public Finance, Chicago, Aldine, 1969; Charles Wolf, Jr., Markets or Governments: Choosing Between Imperfect Alternatives (Cambridge, MA: MIT Press, 1988).
- 2.
For a group of people who purport to dislike advertising, the public finance economists do very well in this regard.
- 3.
The near universal inclusion of education among merit goods by college professors might, however, give one pause about possible financial interest.
- 4.
It is marred, however, by the simplistic identification of equity with equality: “Even when the central importance of distributional equity is acknowledged, the question remains, What standard should be used to evaluate it? The answer will be very different, and often ambiguous, depending on whether equity is interpreted in the sense of equality of outcome or equality of opportunity (p. 19). That’s it? That is how far equity can stretch? Between one or another type of equality? Nonsense. Equity means justice, or fairness, and need have nothing whatever to do with equality. An equitable division of the points between two football teams is whatever points they have earned, not a tie score; an equitable division of the haul in a fishing expedition is whatever had been agreed upon beforehand, not necessarily equal shares.
- 5.
Later on in his analysis, Wolf sees this relationship as “complex...difficult and ambiguous” (pp. 87–91).
- 6.
Wolf continues: “Another perspective for viewing distributional equity is quite unrelated to market failure in the strict sense. From this perspective, the equilibrium redistribution previously referred to may be quite inequitable in terms of one or another ethical norm. Even if the market could surmount the narrow type of ‘finance’ discussed above, its distributional outcome might still be socially and ethically unacceptable from the standpoint of one or more such norms. On these groups, the distributional outcomes of even perfectly functioning markets can be justifiably criticized.” Much as it pains the present authors to appear to defend “perfectly functioning markets” (We maintain there is no such thing, and that the perfectly competitive model is a vast red herring), this last statement of Wolf’s does not logically follow the foregoing. The distribution arising from market interaction can only be justifiably criticized if the ethical norms to which Wolf refers are themselves valid. But no such proof has been even considered, much less offered. In any case, to do so would be to take us very far afield indeed from the realm of (positive) economics.
- 7.
Until they are one day proven to exist, we can now only accept them on the basis of faith.
- 8.
These authors, unfortunately, ascribe fully to the version of the externalities theory we have been attributing to Wolf. (See p. 91).
- 9.
- 10.
Those who maintain that paying taxes, or voting, or living in the country, or swearing allegiance, or singing the national anthem, or maintaining citizenship is sufficient to establish willingness to pay taxes are invited to peruse Spooner (1870) 1966.
- 11.
We abstract from such irrelevancies as quality, associated services (e.g., delivery), location of the vendor, etc.
- 12.
To be fair to MM&B, they do note that “with technical progress raising future productivity, the capital stock needed to sustain the consumption standard may fall, calling for a higher discount rate” (p. 169). But this admission is marred in two ways. First, they base their conclusion on the discredited notion of (intergenerational) equity. Second, they still call for government intervention into the economy. This is problematic because they do so if the present generation is “too greedy,” and they also do so if the present generation is not greedy enough (due to the fact that future generations will be richer than they because of improved technology). In other words, the verdict is in: market failure, the need for government intervention; the only open question is whether there is too much or too little greed. Talk about angels dancing on the tip of a pin.
- 13.
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Block, W., Kordsmeier, W., Horton, J. (2012). The Failure of Public Finance. In: McGee, R. (eds) The Ethics of Tax Evasion. Springer, New York, NY. https://doi.org/10.1007/978-1-4614-1287-8_14
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