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Taming Leviathan

21 Pages Posted: 26 Jul 2015 Last revised: 12 Aug 2015

Peter J. Boettke

George Mason University - Department of Economics

Liya Palagashvili

State University of New York (SUNY) - Purchase College, Department of Economics

Date Written: July 24, 2015

Abstract

The current public debt crises in Western democratic countries provide an important illustration of what Adam Smith had described as the “juggling trick” – namely deficit increases, accumulation of debt, and debasement of currency – that all governments resort to when confronted with public bankruptcy. In this paper, we utilize the discussion on the public sector growth to illuminate the puzzle in political economy regarding effective government constraints, or questions of how to ‘tame leviathan.’ We argue that altering the institutional structures to be more polycentric would contain important self-generating mechanisms to tame leviathan. Specifically, we point to the role of hard budget constraints and the role of competition in polycentric institutions for generating incentives compatible for reducing the size of government. Furthermore, we argue that public debt can be reduced by decentralizing money because it would eliminate the federal government’s option of monetizing its debt.

Keywords: Constitutional political economy, institutional analysis, competitive federalism, public administration, government deficits and debt

JEL Classification: H10, H60, H77

Suggested Citation

Boettke, Peter J. and Palagashvili, Liya, Taming Leviathan (July 24, 2015). GMU Working Paper in Economics No. 15-41. Available at SSRN: https://ssrn.com/abstract=2635701 or http://dx.doi.org/10.2139/ssrn.2635701

Peter J. Boettke

George Mason University - Department of Economics ( email )

4400 University Drive
Fairfax, VA 22030
United States
703-993-1149 (Phone)
703-993-1133 (Fax)

Liya Palagashvili (Contact Author)

State University of New York (SUNY) - Purchase College, Department of Economics ( email )

735 Anderson Hill Road
Purchase, NY 10577
United States

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