Choosing Size of Government Under Ambiguity: Infrastructure Spending and Income Taxation /
Manski, Charles F.
Choosing Size of Government Under Ambiguity: Infrastructure Spending and Income Taxation / Charles F. Manski. - Cambridge, Mass. National Bureau of Economic Research 2012. - 1 online resource: illustrations (black and white); - NBER working paper series no. w18204 . - Working Paper Series (National Bureau of Economic Research) no. w18204. .
July 2012.
Attempting to shed light on the optimal size of government, economists have analyzed planning problems that specify a set of feasible taxation-spending policies and a social welfare function. The analysis characterizes the optimal policy choice of a planner who knows the welfare achieved by each policy. This paper examines choice of size of government by a planner who has partial knowledge of population preferences and the productivity of spending. This is a problem of decision making under ambiguity. Focusing on income-tax financed public spending for infrastructure that aims to enhance productivity, I examine scenarios where the planner observes the outcome of a status quo policy and uses various decision criteria (expected welfare, maximin, Hurwicz, minimax-regret) to choose policy. The analysis shows that the planner can reasonably choose a wide range of spending levels--thus, a society can rationalize having a small or large government. I conclude that to achieve credible conclusions about the desirable size of government, we need to vastly improve current knowledge of population preferences and the productivity of public spending.
System requirements: Adobe [Acrobat] Reader required for PDF files.
Mode of access: World Wide Web.
Choosing Size of Government Under Ambiguity: Infrastructure Spending and Income Taxation / Charles F. Manski. - Cambridge, Mass. National Bureau of Economic Research 2012. - 1 online resource: illustrations (black and white); - NBER working paper series no. w18204 . - Working Paper Series (National Bureau of Economic Research) no. w18204. .
July 2012.
Attempting to shed light on the optimal size of government, economists have analyzed planning problems that specify a set of feasible taxation-spending policies and a social welfare function. The analysis characterizes the optimal policy choice of a planner who knows the welfare achieved by each policy. This paper examines choice of size of government by a planner who has partial knowledge of population preferences and the productivity of spending. This is a problem of decision making under ambiguity. Focusing on income-tax financed public spending for infrastructure that aims to enhance productivity, I examine scenarios where the planner observes the outcome of a status quo policy and uses various decision criteria (expected welfare, maximin, Hurwicz, minimax-regret) to choose policy. The analysis shows that the planner can reasonably choose a wide range of spending levels--thus, a society can rationalize having a small or large government. I conclude that to achieve credible conclusions about the desirable size of government, we need to vastly improve current knowledge of population preferences and the productivity of public spending.
System requirements: Adobe [Acrobat] Reader required for PDF files.
Mode of access: World Wide Web.