Deadweight Costs and the Size of Government

50 Pages Posted: 30 Apr 2000 Last revised: 22 Jul 2022

See all articles by Gary S. Becker

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)

Date Written: November 1998

Abstract

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.

Suggested Citation

Becker, Gary S. and Mulligan, Casey B., Deadweight Costs and the Size of Government (November 1998). NBER Working Paper No. w6789, Available at SSRN: https://ssrn.com/abstract=139570

Gary S. Becker

University of Chicago - Department of Economics ( email )

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University of Chicago - Booth School of Business

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Casey B. Mulligan (Contact Author)

University of Chicago ( email )

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