Empirical Public Economics
Edited by Attiat F. Ott and Richard J. Cebula
Chapter 8: The Supply Side of Democratic Government: A Brief Survey
Thomas Borcherding and Dong (Dan) Lee 1 Introduction In general, government has four options in supplying services: public production using public bureaucracy or public enterprise; ‘outsourced’ supplies through contracting; the employment of tax-expenditures, grants, payments and vouchers directed to private groups and individuals, all tied to speciﬁed private activities; and the use of regulatory ﬁats. The choice amongst supply instruments depends on both the neo-classical and the various neo-institutional transaction costs of providing public policy.1 Some interesting tensions between neo-classical costs and neo-institutional transaction costs will be shown to emerge. Below we parse out these several aspects of the supply side of public policy for representative, competitively organized governments.2 In section 2 we ignore many of the institutional and political aspects of public supply, but dwell on issues of technology, Baumol’s law, compliance costs, tax issues, and regulation. In section 3 the political aspect of bureaucracy as an interest group, the political economy of tax reform, and federalism as a competitive constraint and corrective will be considered. A concluding section 4 brings up issues that we hope may be useful for future research. 2 A-Institutional elements of public supply In this section we consider several aspects of public sector supply, more or less independent of the institutions of public choice.3 2.1 Bureaucratic power and cooperant spillovers on the supply side of public services The supply of public services exhibits three fundamental technological conditions. First, public output is produced under condition of (near) monopoly of citizens’ inclusion in, and obligation...
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