Public Finance in Practice and Theory
Posted: 22 Feb 2010
Date Written: March 2010
Public finance has both normative and positive elements, and moving between theory and practice requires attention to help us understand both what policies government should adopt and whether it is likely to do so. We should not be surprised when bad policies are adopted in spite of better policies being available if our political system is structured to deliver bad outcomes, for example, if our political environment gives politicians strong incentives to serve narrow interests at the expense of the common good. But this article focuses on examples where the contrast between normative and positive outcomes is not so clearly explained, and thus where understanding the reasons for observed policy practices might help us develop better positive theories. The four cases analyzed are: piecemeal progressivity, minimum taxes and other individual limits, quantity-based restrictions and dedicated taxes. While a full explanation for the anomalies discussed lies beyond this article’s scope, some lessons can be drawn from them.
Keywords: Richard Musgrave, public policy, fairness, public choice
JEL Classification: H11, D78
Suggested Citation: Suggested Citation