The Status of the Budget Constraint, Federalism and the Relative Size of Government: A Bureaucracy Approach

Wim Moesen and Philippe van Cauwenberge

Public Choice, 2000, vol. 104, issue 3-4, 207-24

Abstract: We develop a model along the lines of Niskanen, articulating that under a soft government budget constraint the full production cost of the public good is not reflected in the tax price as perceived by the consumer-taxpayer-voter. Various proportions of non-tax financing and different degrees of voter myopia with respect to discounting the future tax liabilities are taken into account. It can be shown that both the actual level of public output and the amount of slack resources are lower under a hard budget constraint than under a soft budget regime. Lower levels of government typically operate under a hard budget constraint when compared with the federal level since they have only limited (public) borrowing opportunities and no access to money creation (seignorage). In a federalist setting more government decisions are taken under a hard budget constraint than in a unitary state. Hence one would expect that the overall size of government is relatively smaller in a structure with fiscal federalism. An empirical test for 19 OECD-countries (1990-92) seems to support this hypothesis. Copyright 2000 by Kluwer Academic Publishers

Date: 2000
References: Add references at CitEc
Citations: View citations in EconPapers (30)

Downloads: (external link)
http://journals.kluweronline.com/issn/0048-5829/contents link to full text (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:pubcho:v:104:y:2000:i:3-4:p:207-24

Ordering information: This journal article can be ordered from
http://www.springer. ... ce/journal/11127/PS2

Access Statistics for this article

Public Choice is currently edited by WIlliam F. Shughart II

More articles in Public Choice from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().