Fiscal Sociology and the Theory of Public Finance

Fiscal Sociology and the Theory of Public Finance

An Exploratory Essay

New Thinking in Political Economy series

Richard E. Wagner

This book advances a social-theoretic treatment of public finance, which contrasts with the typical treatment of government as an agent of intervention into a market economy. To start, Richard Wagner construes government not as an agent but as a polycentric process of interaction, just as is a market economy. The theory of markets and the theory of public finance are thus construed as complementary components of a broader endeavor of social theorizing, with both seeking to provide insight into the emergence of generally coordinated relationships within society. The author places analytical focus on emergent processes of development rather than on states of equilibrium, and with much of that development set in motion by conflict among people and their plans.

Chapter 8: Fiscal Sociology and the Challenge of Societal Agriculture

Richard E. Wagner

Subjects: economics and finance, public choice theory, public finance, politics and public policy, public choice


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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