Fiscal Choices and Economic Outcomes
The Locke Institute series
How is the level of government spending or the average tax rate related to the type of government? How much of the diﬀerences in economic conditions among nations are attributable to the diﬀerences in the basic structure of their governments? How much are these ﬁscal decisions and economic outcomes dependent on the progressivity of the tax structure, the voting rule in a democracy, or the ﬁscal horizon of the government? Only a few economists have even addressed these conditions. Conventional public ﬁnance addresses the eﬀects of ﬁscal decisions but not their causes. For the most part, the new ﬁeld of public choice addresses the second-order characteristics of democratic government. Joseph Schumpeter was one of the few economists with the intellectual breadth and curiosity to address the broader choice among the several major types of political regimes, most importantly in his classic 1942 book on Capitalism, Socialism, and Democracy. The modern classic in this tradition is Mancur Olson’s 1982 book on The Rise and Decline of Nations. In the end, for somewhat diﬀerent reasons, both Schumpeter and Olson were pessimistic about the longterm viability of the combination of capitalism and democracy. The analysis in these two classics, however, was developed in a literary form that is not a suﬃcient basis for quantitative estimates of the eﬀects that they describe. Later, Francis Fukuyama revived the concept of “universal history” in a 1992 book, The End of History and the Last Man, which concludes that a market...