Abstract
Buchanan (1965) highlighted the inconsistencies that arise when public services (available at little or no cost at the point of delivery) are financed by general taxation. Citizens (as ‘consumers’) increase their demand for services, even though citizens (as ‘voters’) are reticent to increase taxation. Buchanan invited readers to explore the impact of different assumptions of politicians’ behaviour. In this chapter, attention focuses on the way that vote maximising governments are likely to respond to the divorce between receipt and payment for services. Buchanan illustrated his analysis with reference to the National Health Service in the UK. Predictions are tested with reference to the pattern of excess demand in the National Health Service between 1970 and 2012.
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The average annual change in the spending ratio was 0.2% of GDP (1997–2015). Over the same period private expenditure on health also grew but not at the same rate, increasing from 0.5% of GDP in 1970 to 2.0% of GDP in 2015.
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While changes in waiting times are also indicators of change in excess demand, changes in waiting lists are used in this paper because this data is available over a longer period.
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In the British Social Attitudes Survey, respondents sometimes indicate a preference for increased expenditure on health care even if this implies an increase in taxation (as an example, see Park et al. 2013). However, as Brook et al. (1998) have noted, apparent willingness to increase taxation is difficult to interpret. They demonstrate that in some questionnaire studies respondents have indicated that they are willing to increase taxation in order to increase public expenditure but, with closer analysis, when voters appear willing to increase taxation , they are willing to increase other citizens’ taxes .
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Producer groups are interested in increases in remuneration and increases in remuneration increase current expenditures. However, producers are relatively more likely to be interested in capital expenditures. With evidence that “….individual voters…care most about public consumption goods or transfers… (and) business interests… (care most about) …the infrastructure…. ” (Lane 2003, p. 2665), producers are likely to be relatively more effective, pressing (in economic upturns) for increases in capital expenditures.
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Gavin and Perotti (1997) found fiscal policy responds asymmetrically in industrial countries but not in developing countries. Arena and Revilla (2009) find for the state governments of Brazil that fiscal expenditures were more procyclical during economic downturns than upturns, though the degree of procyclicality is broadly similar for government revenues.
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Abbott, A., Jones, P. (2018). Inconsistencies in the Finance of Public Services: Government Responses to Excess Demand. In: Wagner, R. (eds) James M. Buchanan. Remaking Economics: Eminent Post-War Economists. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-03080-3_11
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