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The Fiscal Decision Process: Theory of Public Choice

The Fiscal Decision Process: Theory of Public Choice. Bureaucracy and the Supply of Public Services. What is Bureaucracy ?. Bureaucracy is the social institution through which publicly provided services are publicly produced.

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The Fiscal Decision Process: Theory of Public Choice

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  1. The Fiscal Decision Process: Theory of Public Choice

  2. Bureaucracy and the Supply of Public Services

  3. What is Bureaucracy ? • Bureaucracy is the social institution through which publicly provided services are publicly produced. • The alternative to bureaucratic supply of public service is the purchase of such services from private firms. • What differences exist between the two institutions with respect to the incentive structure? • The lack of competition among public bureaus. • The lack of profit incentive. • Public services are not sold for a price.

  4. Niskanen Model of bureaucracy • Bureaucrats are interested in obtaining such thing as: higher salary, prestige, power, and patronage. • To obtain these things is positively correlated with the size of the budget. • Niskanen argues that the objective of budget maximization combined with the position of most bureaus as monopoly suppliers of some public services will result in excessive supply of such services. • Bureaucrats are confronting ministry of finance with “all or nothing”

  5. Can bureaucratic Performance Be Improved? • More Competition • Collectively financed contract services. • Voucher plan for education as an example.

  6. Public Choice and Budgetary Size

  7. The Separation of Expenditure and Tax Choice • Example husband and wife. • Spending proclivity and budget balance (budget constraint prevent over spending). • Balanced – budget rule and Keynesian fiscal policy (Balanced – budget prevent over spending). Keynesian economists use budget as an instrument to achieve macroeconomic objectives as full employment, and economic growth.

  8. Fragmentation of Budgetary Decision Making • Decision taken with respect to a single budgetary component may affect the setting for decision on other components and these spill over or externality may not be considered. • Example: Highway construction and subsidization of mass transit system.

  9. Controllability of outlays and budgetary size • Once a program are instituted the government can do little to control increase in number of recipients and is legally committed to increase outlay sufficiently to cover these persons.

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