Why Do Governments Find It so Hard to Control Public Expenditure?

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Why Do Governments Find It So Hard To Control Public Expenditure?

Since the 1970's rising public expenditure has become a politically salient issue, with the focus being on the difficulties experienced in trying to control it. In order to answer a question concerning why governments find it hard to control public expenditure it is first necessary to look at the reasons for the growth in public spending. There are three approaches which attempt to give reasons for growing public expenditure which I intend to scrutinise, these are, the societal system approach, the political system approach and the governmental system approach. An evaluation of these approaches should in turn shed light as to why governments find rising public expenditure hard to control. Following this approach which gives a wide outlook on the problems facing governments in controlling public expenditure, I will look at the post 1979 conservative government as it in particular targeted controlling expenditure upon taking office.

Under the societal system approach one reason why a growth in public spending can be seen to have occurred is due to Wagner's ‘law of increasing state activity.' Wagner's claim is that as per capita real income increases in particular nations, they will spend a higher proportion of national product through government. As Wagner's reasons for increased public expenditure tend to be centralised around industrialisation and its associated effects it is not surprising to find that he thought the density of urban living would increase social frictions to such an extent that the government would be called in to handle it. That is to say, urban living would result in the need for enhanced police protection and other forms of government regulation. Wagner also believed that with growing industry certain investments would require so much capital that the state would have to provide it. He thought there would also be public goods that may not be in the interests of an entrepreneur to provide.

There are counter arguments to Wagner's suggestions, the first of these is that it could be argued that increased density would provide opportunities for economies of scale. Thus, the proximity of people to one another could result in networks of personal support, lessening the need for public services. Secondly, contrary to Wagner's arguments for public good provision by the state, it is possible to show other countries that either do without it, or provide for user charges. This shifts the burden from general revenues to those who benefit most directly.

Another reason for rising government expenditure under the societal system approach is expressed via Tarschy's ‘demonstration effect.' He suggests that the coming of television "has led to increased awareness of the standard of living enjoyed by other segments in society and even in other parts of the world. As a consequence, expectations and pretensions mount, and people get increasingly sensitive to, injustices in the distribution of public goods." But, if people become aware of goods they would like, then why don't they work harder.

Peacock and Wiseman (1961) have suggested an alternative hypothesis known as the ‘displacement effect', in which they believe public expenditure is limited by available revenues. They suggest that we have seen increases in revenue occurring because after the two world wars the level of taxation, although falling down from the enormously high levels in wartime, did not recede back to the old level. Thus their hypothesis is that major crises expand the public tolerance for increased levels of taxation. An argument against this hypothesis is that why did expenditure continue to rise in the 1960's when there was no displacement effect.

Another attempt at explaining rising public expenditure occurs under the political system approach which proposes that pressures from within the political system itself is responsible. Anthony Downs...
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