Daniel Tarschys

Curbing Public Expenditure: Current Trends

Nearly every OECD country has faced a scissors crisis in public finance since the worldwide depression of the mid-1970s; in slow growth economies public spending has been rising faster than tax revenues. In response, a great variety of methods have been employed to control public spending. Governments have sought to: impose global ceilings on spending; modify indexation rules; decentralize decremental decisions among government agencies; improve cash flow management; devise balanced packages; introduce new constitutional rules; provide incentives for retrenchment; and privatize public sector activities. Efforts to impose cuts in spending have been directed at the bureaucracy; transfer payments; subsidies; local and regional government; and quangos. The conclusion emphasizes that retrenchment policy presupposes a shift in the balance of power between guardians and spenders.

The scissors crisis in public finance

The late 1970s saw the beginnings of a “scissors crisis” in public finance, i.e., a growing divergence between the expansion of government revenues and the increase in government expenditures. Unless strong measures are taken, the 1980s threaten to become the age of mega-deficits. The sluggish growth of public receipts and the buoyant development of public outlays are linked to a number of structural tendencies in the economies of the industrialized world. Efforts to close the gap have included both tax increases and expenditure cuts, but as more and more governments gain experience with the phenomenon of “fiscal cannibalism,” i.e., that taxes eat up each other, the main thrust of the counter-offensive has come to be directed against the growth of public spending. Current strategies to reinforce expenditures control include such elements as global norms, new indexing techniques, new methods of decentralizing hard choices, better methods of cash management, well-balanced policy packages, and incentives especially designed to stimulate cutbacks and policy termination.

Tributes, Tariffs, Taxes and Trade: The Changing Sources of Government Revenue

Government action presupposes extraction. Historically, four different sources of public revenue may be distinguished. Tributes , which are common in peimitive and belligerent states, are variable levies exacted at irregular intervals. Tariffs raised on the basis of the physical control of strategic passageways are important sources of income for mercantile states in the early stage of their development. Taxes play some role in semi modern economies but evolve more fully as the financial mainstay of government in advanced industrial societies. In addition, many states draw large receipts from the profits of trade. The planned economies in the socialist bloc are trading states rather than tax states. The different logistic properties of these revenue sources affect the prospects for government growth at various stages of economic development. The expansion of the tax state is strongly linked to the proliferation of monetary flows in modern society. At the same time, some non tax receipts such as user charges and other incomes from trade retain their importance, and the present ‘crisis of the tax state’ might possibly lead to a more composite structure of government revenue.

Rational decremental budgeting: Elements of an expenditure policy for the 1980s

The dominant pattern of decision-making on public expenditures has been characterized as incremental budgeting. Wide-spread dissatisfaction with this approach has led to the emergence and testing of various techniques purporting to deal with expenditure decisions in a more rational, analytic and comprehensive fashion. Yet our experience with this brand of synoptic rationalism is at best mixed; few innovations in the field of budgeting have lived up to the expectations surrounding their introduction. A synthesis of the two models outlined in this paper is called rational decrementalism: an expenditure policy for an era of retarded growth or economic stagnation.

Neutrality and the Common Market: the Soviet View

The Soviet doctrine on the legal implications of neutrality is liberal with regard to the non-aligned nations in the third world but rigid with regard to the neutral states in Western Europe. On the one hand, Soviet jurists defend the right of neutral countries to pursue a highly active foreign policy. On the other, they contend that neither mem bership nor association with the Common Market is compatible with Swedish, Austrian, or Swiss neutrality. This inherent tension in the Soviet theory of neutrality is not resolved at the level of abstract definitions of neutrality and neutralism where the liberal interpretation tends to prevail.

The Soviet political agenda : problems and priorities, 1950-1970

An examination of Russias philosophical heritage. It extends from the Slavophiles to the philosophers of the Silver Age, from emigre religious thinkers to Losev and Bakhtin and assesses the meaning for Russian culture as a whole.

Investing Where it Matters: An EU Budget for Long-Term Growth

What share of the EU’s collective GDP should the EU budget represent? 1%? 1.05%? 0.95%? A Task Force set up by CEPS to explore this question finds that the EU member states, once again, are locked in a pointless battle. Their report argues that the amount is not decisive when it comes to EU spending, but that quality matters far more than quantity. And it is on the quality side that the most significant improvements can be made. This report warns that obsession with net balances is bound to lead to bad decisions and exhorts Europe’s decision-makers to unleash the potential of the EU budget to make a significant contribution to long-term growth. To achieve this end, the report calls for enhanced investment in innovation, infrastructure that reinforces the single market and key European public goods, such as the management of environmental resources.

Taxes and bribes: assessing the extraction burden in orderly and disorderly societies

Countries with a low GDP per capita generally have a much lower fiscal quota than OECD countries, but many other factors push up the transaction costs in poor economies. High-tax societies provide more security, predictability and organizational discipline. The absence of such conditions is a powerful breeding-ground for corruption. If fiscal payments and bribes are added up to arrive at a composite measure of the ‘extraction burden’ in different countries, we might find that the costs of doing business do not diverge so much in various parts of the world.

PRODUCTIVITY AND EFFECTIVENESS IN HEALTH CARE

In a series of studies, the Swedish Expert Group on Public Finance (ESO) has examined productivity trends in the public sector. Covering some 70% of the public sector, the group found an aggregate productivity loss of 1.5% a year from 1970 to 1980. In the medical services, there was a 3% decline in productivity from 1960 to 1980. One implication of the findings is that the growth rate of Swedish GNP has probably been overestimated. Determinants of productivity trends in the public sector and criticisms levelled at the studies are discussed in the paper.