The Elgar Companion to Public Choice
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The Elgar Companion to Public Choice

Edited by William F. Shughart II and Laura Razzolini

This authoritative and encyclopaedic reference work provides a thorough account of the public choice approach to economics and politics. The Companion breaks new ground by joining together the most important issues in the field in a single comprehensive volume. It contains state-of-the-art discussions of both old and contemporary problems, including new work by the founding fathers as well as contributions by a new generation of younger scholars.  
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Chapter 19: Public choice and public choice

Randall G. Holcombe


19 Public choice and public finance Randall G. Holcombe 1 Introduction Public choice can be defined as the application of economic methods to the analysis of political phenomena. This definition fits well with some of the early classic works that launched public choice as a separate subdiscipline, such as Black ([1958] 1987), Downs (1957), Buchanan and Tullock (1962), and Olson (1965). By this definition, and in the context of those works just cited, public finance has a distinctly peripheral relationship to public choice, and is relevant only to the extent that it is one of the activities taken on by the public sector. Yet public finance does have a close relationship to the fundamental ideas of public choice. Buchanan (1987a) gives substantial credit to Knut Wicksell ([1896] 1967) for laying the foundations for what has become modern public choice theory, but Wicksell’s goal was not to analyse political phenomena with economic tools. Rather, he wanted to develop an efficient and just system of taxation and public expenditures. Building on Wicksell’s insights, modern public choice theory shows that one cannot fully understand the government’s taxing and spending activities without also understanding the political decision-making process that determines those policies. A complete understanding of the process of public finance requires an analysis of the political decision-making process that determines how governments will both raise and spend revenues. In other words, a complete understanding of public finance requires that it be analysed from a public choice perspective. The importance...

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