Reassessing the role of government in the mixed economy

The disappointing performance of our economies over the last ten years has been attributed to several factors. One of them is the growth of government. The inefficiency of increasing governmental production, the disincentive effects of rising taxation, transfers and social insurance, and the restrictive influence of proliferating gov ernment regulations are all said to have undermined our ability and willingness to adjust to innovations and exogenous disturbances. Are these claims well founded, and if so, how should the role of govern ment be redefined?
In several foreign countries, notably in the United States and the United Kingdom, governments have been elected which are trying to reduce the economic role of government. Since it was our aim to learn from their experience, we have invited economists from those coun tries to report and evaluate the policies that have been adopted by their governments, and we have asked German experts to comment on these papers. Most of the German discussants are contributing papers to a corresponding German volume which is forthcoming. The first eight papers are concerned with governmental production, the last three with governmental regulation.

The papers by Alan Peacock and Rudolph Penner analyze the British and American attempts to cut public expenditure growth and make sug gestions for future action in this respect. Richard McKenzie's study shows how federal matching grants to lower-level governments can act as incentives to increase government expenditure and how Presi dent Reagan's proposal for a transition to block grants and, finally, to an intergovernmental separation of functions is designed to elimi nate those perverse incentives and to lay the responsibility for spend-. ing decisions and for financing the spending in the hands of the same political decision-makers.