The Fiscal Decision Process: Theory of Public Choice

Bureaucracy and the Supply of Public Services

What is Bureaucracy ? Bureaucracy is the social institution through which publicly provided services are publicly produced. Bureaucracy is the social institution through which publicly provided services are publicly produced. The alternative to bureaucratic supply of public service is the purchase of such services from private firms. The alternative to bureaucratic supply of public service is the purchase of such services from private firms. What differences exist between the two institutions with respect to the incentive structure? What differences exist between the two institutions with respect to the incentive structure? The lack of competition among public bureaus. The lack of competition among public bureaus. The lack of profit incentive. The lack of profit incentive. Public services are not sold for a price. Public services are not sold for a price.

Niskanen Model of bureaucracy Bureaucrats are interested in obtaining such thing as: higher salary, prestige, power, and patronage. Bureaucrats are interested in obtaining such thing as: higher salary, prestige, power, and patronage. To obtain these things is positively correlated with the size of the budget. To obtain these things is positively correlated with the size of the budget. Niskanen argues that the objective of budget maximization combined with the position of most bureaus as monopoly suppliers of some public services will result in excessive supply of such services. Niskanen argues that the objective of budget maximization combined with the position of most bureaus as monopoly suppliers of some public services will result in excessive supply of such services. Bureaucrats are confronting ministry of finance with all or nothing Bureaucrats are confronting ministry of finance with all or nothing

Can bureaucratic Performance Be Improved? More Competition More Competition Collectively financed contract services. Collectively financed contract services. Voucher plan for education as an example. Voucher plan for education as an example.

Public Choice and Budgetary Size

The Separation of Expenditure and Tax Choice Example husband and wife. Example husband and wife. Spending proclivity and budget balance (budget constraint prevent over spending). Spending proclivity and budget balance (budget constraint prevent over spending). Balanced – budget rule and Keynesian fiscal policy (Balanced – budget prevent over spending). Keynesian economists use budget as an instrument to achieve macroeconomic objectives as full employment, and economic growth. Balanced – budget rule and Keynesian fiscal policy (Balanced – budget prevent over spending). Keynesian economists use budget as an instrument to achieve macroeconomic objectives as full employment, and economic growth.

Fragmentation of Budgetary Decision Making Decision taken with respect to a single budgetary component may affect the setting for decision on other components and these spill over or externality may not be considered. Decision taken with respect to a single budgetary component may affect the setting for decision on other components and these spill over or externality may not be considered. Example: Highway construction and subsidization of mass transit system. Example: Highway construction and subsidization of mass transit system.

Controllability of outlays and budgetary size Once a program are instituted the government can do little to control increase in number of recipients and is legally committed to increase outlay sufficiently to cover these persons. Once a program are instituted the government can do little to control increase in number of recipients and is legally committed to increase outlay sufficiently to cover these persons.