Deadweight Costs and the Size of Government
Gary S. Becker
University of Chicago - Department of Economics; University of Chicago - Booth School of Business
Casey B. Mulligan
University of Chicago; National Bureau of Economic Research (NBER)
NBER Working Paper No. w6789
We provide a model for analyzing effects of the tax system and spending programs on the determination of government spending and taxpayer welfare and show that tax system or spending program which is suboptimal from a Ramsey point of view can improve taxpayer welfare because the system creates additional political pressure for suppressing the growth of government. Relevant examples include the use of inflation taxes capital taxes, excise taxes, deficit financing, and income taxes with many We also demonstrate the similarity of the political responses to revenue shocks, spending shocks, changes in program efficiency. In a broad sample of countries for the years 1973 - 90, we show that broad-based taxes with fairly flat rate structures -- are associated with larger governments. An analysis of defense spending -- especially wartime spending -- oil shocks, intergovernmental grants, and other flypaper effects suggests that the cause and effect is not from spending to tax structures.
Number of Pages in PDF File: 50
Date posted: April 30, 2000
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