Public Choice

, Volume 68, Issue 1, pp 273-276

First online:

Privatization and government size

  • Michael L. MarlowAffiliated withDepartment of Economics, California Polytechnic State University

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A budget constraint view of government shows that privatization need not alter spending when it is implemented without a rule forbidding re-use of the funding backing newly-privatized programs. Only when these funds are eliminated from the budget process (e.g., tax rebates or permanent deficit reduction) can these funds not back new programs or expand existing programs. This is an important caveat since privatization proposals do not contain such rules. With such rules, privatization can increase allocational efficiency and lead to smaller government size.