An Exploratory Essay
New Thinking in Political Economy series
Chapter 8: Fiscal Sociology and the Challenge of Societal Agriculture
The systems design or teleological orientation toward public ﬁnance construes its object, the state, as intervening in the economy to change the resource allocations that would otherwise have resulted. The seminal articulation of this orientation is Richard Musgrave’s (1959) treatise The Theory of Public Finance. Musgrave presented a three-fold analytical schema for state intervention that has provided the foundation for ﬁscal theorizing ever since. Musgrave conceptualized the state as pursuing its tasks within a three-part budgetary framework whose elements were allocation, distribution and stabilization. The dichotomy between allocation and distribution is still in full play in contemporary ﬁscal theorizing. The interest in stabilization through ﬁscal policy is also still alive, except that it is now treated as a topic for macro theorizing and not for ﬁscal theorizing. The teleological orientation toward public ﬁnance bears a mirror image relationship to the theory of welfare economics. This latter is summarized by two theorems. The ﬁrst asserts that competitive resource allocations are Pareto eﬃcient. The second theorem asserts that one Pareto-eﬃcient allocation can be transformed into an alternative Pareto-eﬃcient allocation through a set of lump-sum taxes and transfers. This two-theorem framework of welfare economics maps directly into a conceptualization of public ﬁnance in terms of allocative and distributive branches. The territory to be ﬁlled by the allocative branch is the territory where the ﬁrst theorem of welfare economics fails to hold. In the presence of such alleged failures, various arguments are advanced that states should use their budgetary and regulatory...
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