Government finance: economics of the public sector

One major change in public finance has been the great increase in emphasis on decision making for governmental activities and expenditures, integrating the work of political science, administrative theory, and economics. As a part of this development, increased attention has been given to cost-benefit analysis and to budget systems, with particular emphasis on program budgeting. These trends have been greatly influenced by the writings of Paul Samuelson, J. M. Buchanan, Gordon Tullock, and Anthony Downs, by the work at RAND and else where on national defense programming, and by the studies of Otto Eckstein and others in the water resources field. The first five chapters of this edition have been developed in light of this newer analysis; I am greatly indebted to the work of the persons named above and to others in the field.

A second major change in the book has been the reorganization of the structure to allow unified treatment of economic effects of expenditures, debt, and revenue sources in a single section, Chapters 6 through 9. This section reflects particularly the work of Richard Mus grave and the empirical studies in recent years of effects of various expenditure and tax programs. Analysis of distributional effects (shifting and incidence) still leaves much to be desired. The conflicting results of the various econometric studies of the distribution of burden of the corporate income tax have added confusion, at least temporarily, to the picture.

This analysis of economic effects leads to a discussion of various policy questions: fiscal and debt policy, intergovernmental fiscal questions, and the use of charges for financing. The intergovernmental chapter reflects the work by George Break in the Brookings studies. Chapter 14 considers the role of various major taxes in the overall tax structure in light of assumed objectives of society, and Chapters 15 and 16 review issues relating to the structure of these major taxes. The space allocated to income taxation has been reduced from the previous editions, in conformity with changing emphasis in the field.