Democracy and Public Finance: A Polycentric, Invisible-Hand Framework

30 Pages Posted: 2 Jun 2011

See all articles by Richard E. Wagner

Richard E. Wagner

George Mason University - Department of Economics; George Mason University - Mercatus Center

Date Written: May 31, 2011


Most public finance theorizing treats its material of public finance as reflecting some ruler's optimizing choices. Within democratic regimes this ruler is typically a median vote. While this approach has tractability on its side, it achieves that tractability by presenting caricatures of democratic fiscal processes by reducing democratic complexity to monocentric simplicity. In contrast, this paper explores a polycentric or invisible hand framework for fiscal theorizing, which recognizes that no single mind is even capable of apprehending in detail the substantive reality of modern fiscal processes. What results is recognition that fiscal processes resemble market processes in that they operate through knowledge that is distributed among participants and where fiscal outcomes are products of spontaneous ordering that emerges through competitive interaction among political enterprises within a quasi-market process of open competition.

Keywords: centralized mindset, invisible hand theorizing, polycentricity, parasitical competition, competition among political enterprises, scale-free models

JEL Classification: D70, H30

Suggested Citation

Wagner, Richard E., Democracy and Public Finance: A Polycentric, Invisible-Hand Framework (May 31, 2011). GMU Working Paper in Economics No. 11-23, Available at SSRN: or

Richard E. Wagner (Contact Author)

George Mason University - Department of Economics ( email )

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George Mason University - Mercatus Center ( email )

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