Choosing Size of Government Under Ambiguity: Infrastructure Spending and Income Taxation

18 Pages Posted: 23 May 2014

See all articles by Charles F. Manski

Charles F. Manski

Northwestern University - Department of Economics; National Bureau of Economic Research (NBER)

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Date Written: May 2014

Abstract

I examine choice of size of government by a planner who has partial knowledge of population preferences and the productivity of public spending. Focusing on income tax‐financed spending for infrastructure, I examine scenarios where the planner observes the outcome of a status quo policy and uses various decision criteria to choose policy. The analysis shows that the planner can reasonably choose a wide range of spending levels – thus, a society can rationalise having a small or large government. I conclude that to achieve credible conclusions about the desirable size of government, we need to improve current knowledge of preferences and the productivity of spending vastly.

Suggested Citation

Manski, Charles F., Choosing Size of Government Under Ambiguity: Infrastructure Spending and Income Taxation (May 2014). The Economic Journal, Vol. 124, Issue 576, pp. 359-376, 2014, Available at SSRN: https://ssrn.com/abstract=2441393 or http://dx.doi.org/10.1111/ecoj.12140

Charles F. Manski (Contact Author)

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