Government: the Deficit and What to Do About It

  • Tim Hazledine


The largest single lump in the lumpy economy is government itself. In the OECD economies, government spending averages around 40 per cent of Gross National Product. This is a large number, and one that has grown about fourfold since the end of the First World War.1


Government Spending Full Employment European Economic Community Sales Taxis Natural Monopoly 
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  1. 3.
    Mervyn King, in the Guardian, 14 November 1973; cited by Stuart Holland, The Socialist Challenge (Quartet Books, 1975) p. 66.Google Scholar
  2. 5.
    A Brookings study found that ‘the US tax system is essentially proportional for the vast majority of families and therefore has little effect on the overall distribution of income’. See Joseph A. Pechman and Benjamin A. Ockner, Who Bears the Tax Burden? (Brookings, 1974).Google Scholar
  3. 6.
    George Cooper, A Voluntary Tax? New Perspectives on Sophisticated Tax Avoidance (Brookings, 1979).Google Scholar
  4. 7.
    David Walker, review of J. A. Kay and M. A. King, The British Tax System (Oxford University Press, 1978), in The Economic Journal (March 1979) pp. 173–5. Kay and King also find that there is, in effect, no attempt to tax corporation profits in the UK now.Google Scholar
  5. 9.
    Carl P. Simon and Ann D. Witte, Beating the System: The Underground Economy (Auburn House, 1982), estimate the US underground economy at between 9 and 16 per cent of GNP in 1974.Google Scholar
  6. International estimates and comparisons are given in Vito Tanzi (ed), The Underground Economy in the United States and Abroad (Heath, Lexington, 1982).Google Scholar
  7. 10.
    For papers presenting arguments for and against the expenditure tax, see Joseph A. Pechman (ed), What Should be Taxed: Income or Expenditure? (Brookings, 1980). An analysis by economists involved in preparing the Meade Committee’s report is the book by Kay and King, The British Tax System. Google Scholar
  8. 12.
    See Tobin, ‘Stabilisation Policy Ten Years After’, n. 16, p. 40. A comprehensive empirical study of the economic effects of taxation is the volume How Taxes Affect Economic Behavior, Henry J. Aaron and Joseph A. Pechman (eds), (Brookings, 1981).Google Scholar
  9. 13.
    J. K. Galbraith, ‘A Cure for the Economy’, New York Review of Books, 2 June 1983, James Tobin, ‘Reagan’s Counterrevolution’, ibid, 3 December 1981; Emma Rothschild, ‘Reagan’s Case Against the Economy’, ibid, 25 April 1982.Google Scholar

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© Tim Hazledine 1984

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  • Tim Hazledine

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