Public Attitudes Toward Social Spending in the United States: The Differences Between Direct Spending and Tax Expenditures

This paper uses a survey experiment to examine differences in public attitudes toward ‘direct’ and ‘indirect’ government spending. Federal social welfare spending in the USA has two components: the federal government spends money to directly provide social benefits to citizens, and also indirectly subsidizes the private provision of social benefits through tax expenditures. Though benefits provided through tax expenditures are considered spending for budgetary purposes, they differ from direct spending in several ways: in the mechanisms through which benefits are delivered to citizens, in how they distribute wealth across the income spectrum, and in the visibility of their policy consequences to the mass public. We develop and test a model explaining how these differences will affect public attitudes toward spending conducted through direct and indirect means. We find that support for otherwise identical social programs is generally higher when such programs are portrayed as being delivered through tax expenditures than when they are portrayed as being delivered by direct spending. In addition, support for tax expenditure programs which redistribute wealth upward drops when citizens are provided information about the redistributive effects. Both of these results are conditioned by partisanship, with the opinions of Republicans more sensitive to the mechanism through which benefits are delivered, and the opinions of Democrats more sensitive to information about their redistributive effects.     

Political Trust, Ideology, and Public Support for Government Spending

This article analyzes the relationship between political trust, ideology, and public support for government spending. We argue that the political trust heuristic is activated when individuals are asked to sacrifice ideological as well as material interests. Aggregate- and individual-level analysis shows that the effects of political trust on support for government spending are moderated by ideology. Consistent with the unbalanced ideological costs imposed by requests for increased government spending, we find that the effects of political trust are significantly more pronounced among conservatives than among liberals. The analysis further demonstrates that ideology conditions the effects of political trust on attitudes toward both distributive and redistributive spending. Our findings suggest that political trust has policy consequences across a much broader range of policy issues than previously thought.     

Politics of childcare policy beyond the left–right scale: Post‐industrialisation,transformation of party systems and welfare state restructuring

Childcare policy has become an integral part of social and economic policy in post‐industrial democracies. This article explores how the transformation of party systems structures the politics of childcare policy. It reveals that political parties contend with each other over childcare and female employment policy on the social‐value dimension as well as the redistributive dimension. Assuming that different party policies have distinct impacts on public childcare policy, it is hypothesised in this article that a government's policy position – composed of the governing parties' policy positions – affects changes in public spending for childcare services. Through an analysis of the pooled time‐series and cross‐section data of 18 advanced industrialised countries from 1980 until 2005 using multivariate regression methods, it is revealed that a government's redistributive left–right policy position interacts with its social liberal–conservative policy position, and that a left–liberal government raises its budget for childcare services while a left–conservative government does not.     

Crowd‐Out or Affordability? The Lifeline Expansion's Effect on Wireless Service Spending

Public subsidization of private goods often leads to crowd‐out, reducing private spending. This effect is intended for a policy such as the 2008 Lifeline phone subsidy expansion, which aimed to increase affordable access to services. I examine the effects of this policy on households’ self‐reported wireless phone service spending in the Consumer Expenditure Survey. Using state‐level variation in policy implementation and triple‐differences event study methods, I estimate that the expansion reduced households’ wireless service spending by more than 100 percent of subsidy payments. I document that the expansion led to a separate, competitive market for providers catering to low‐income households. Consequently, higher‐quality subsidized services crowded out lower‐quality unsubsidized options, saving households more than an equivalent cash transfer. This highlights how market segmentation and competition can magnify a targeted subsidy's impact.     

Social mobility and the demand for public consumption expenditures

The collective choice of public consumption expenditure is reconsidered when voters are socially mobile. In accordance with previous work on social mobility and political economics, the analysis concerns a class of mobility processes that induce mappings from initial income to expected future income that are monotonically increasing and concave. The paper abstracts from the explicitly redistributive role of government and concentrates on public consumption which is modeled as a classical public good. In equilibrium, provision is sensitive to the degree of social mobility, theoretically linking social mobility to public consumption. Further, empirical puzzles about the impact of voting franchise extensions on the growth of government spending are addressed within the context of social mobility.     

A distributional theory of government growth

This article presents a closed form solution for time-consistent taxation and public spending in a dynamic game between government and median voter. Extending Meltzer and Richard’s static analysis of government size the article offers a theory of growth of government. At low stages of economic development the median voter, identified as a relatively poor worker, prefers to have no or only small redistributive taxation in order to foster savings. Through this channel he expects improvements of his labor productivity and wage. At higher stages of development, however, when capital is relatively abundant and prospects of further labor productivity gains through capital accumulation are smaller, the incentive to tax and redistribute income rises. Yet, in line with previous work on growth and infrastructure spending the median voter prefers a constant share of productive public spending at all times. Hence, government growth is solely driven by an expanding welfare state.     

Decentralized education spending and regional disparities: Evidence from Chinese counties 1997–2001

Chinese fiscal reforms in the past decade have recentralized government revenues, making lower governments more dependent on central and provincial funds. At the same time, decentralization in spending has obliged the county governments to take primary responsibility for financing compulsory education. That vertical imbalance can lead to widening regional gap in education if the central government does not carry out effective redistributive fiscal transfers. This paper examines a data set that includes all the counties of mainland China from 1997 through 2001 and finds that regional economic and budgetary disparities did carry over to education spending. The author would like to thank Professor Alice Cooper and the anonymous reviewers for invaluable suggestions.     

Partisan politics,welfare states,and environmental policy outputs in the OECD countries, 1975–2005

Building on the burgeoning literature on the association between the welfare state and the environmental state, this study empirically examines how the politics of the former has affected the development of the latter. We suggest that the size of the welfare state shapes the calculus of environmental policy costs by partisan governments. A generous welfare state lowers the costs perceived by the left‐wing government, as large redistributive spending allows the government to mitigate the adverse impact of the new environmental policy on its core supporters, industrial workers. A generous welfare state also implies diminished marginal political returns from additional welfare commitment by the left‐wing government, which lowers the opportunity costs of environmental policy expansion. To the contrary, because of lower overall regulatory and taxation pressure, a small welfare state reduces the costs of environmental policy expansion as perceived by a right‐wing government. Our theoretical narrative is supported in a dynamic panel data analysis of environmental policy outputs in 25 Organisation for Economic Co‐operation and Development member states during the period 1975–2005.     

Is There a Dark Side to Government Supportfor Nonprofits?

The relationship between government social spending and private donations to the nonprofit sector is an issue that is relevant to both public administrators and nonprofit managers. Does government funding displace philanthropy, or encourage it? This article introduces the debate into the public administration literature. First, I survey and interpret the empirical work performed to date in this area by economists. Second, I retest this question across four nonprofit subsectors using data on both federal and state/local spending. My survey of the literature shows mixed results, although a broad pattern indicates that “crowding out” tends to dominate, particularly in the areas of social service provision and health. My empirical results are consistent with these findings, although they must be interpreted cautiously from a policy perspective: While results are statistically significant, the degree of crowding out is generally small. On the other hand, the claim that government funding stimulates giving seems to lack both statistical and policy significance.     

Does Foreign Aid Promote the Expansion of Government?

Building on the literature on public finance, I seek to advance our understanding of variations in government size by exploring the impact of official development assistance on fiscal policy. I hypothesize that foreign aid operates in accordance with the "flypaper effect," systematically generating incentives and opportunities for the expansion of government spending. Results from a time-series cross-sectional regression analysis of growth in government spending over the 1970–99 time period are consistent with the hypothesis. For middle- and lower-income nations, aid represents an important determinant of government expansion. Looking at the tax and revenue side of the equation, however, reveals a more perverse pattern of response: aid promotes not only increased spending but also reduced revenue generation. The results have important implications from both a theoretical and policy perspective. Inter alia they point to the potentially self-defeating nature of efforts to promote market-oriented programs of state retrenchment via development assistance as well as to the importance of incorporating international transfers into future research on government spending.     

Mediterranean neo‐democracies and the opinion‐policy nexus

This article empirically evaluates the previously unresearched relationship between mass public opinion and public policy in the Mediterranean neo‐democracies. By studying almost 250 issues over the last decade, the nature of contemporary democracy in Spain, Portugal and Greece is revealed in relation to the overall consistency between majority preferences and government action. In addition, the opinion‐policy nexus is explored in regard to the potential impact of alternative institutional structures, landslide majorities, different categories of issues (e.g., redistributive, foreign policy), and the partisan composition of the government (i.e., socialist versus non‐socialist).     

On the (relative) unimportance of a balanced budget

This paper explores the reasoning underlying Milton Friedman's preference for a small, unbalanced budget over a large, balanced one. Because the marginal return from government spending is less than the marginal cost (measured in terms of the amount of income private individuals remain free to spend), government expenditures have more of an adverse impact on the economy in his view than does the method of financing that spending. Using a panel data set comprising the 50 states plus the District of Columbia, we report evidence from the years 1967 through 1992 that growth rates in income per capita tend to be higher in states with smaller public sectors. Moreover, we find that while both deficits and taxes reduce the rate of income growth in a state, the negative impact of government spending is considerably larger at the margin.     

What Not to Ask of Budget Processes: Lessons from George W. Bush's Years

Budget reform requires goals that are both good public policy and achievable. The core purpose of budgeting is to consider and relate details and totals. Common demands for reform are dubious because they slight consideration of details. For this reason, too strict a definition of "balance" would be bad policy; the demand for balance over many decades is neither good policy nor realistic; and multiyear discretionary spending caps can be both bad policy and impractical. Concern about passing annual budget resolutions ignores the fact that the major reason for annual totals is no longer endorsed by policy makers and economists. Scorekeeping should be honest and accurate and often can be improved, but possible achievements are limited. Budget reforms will not make government accountable if the governing coalition is united in seeking to avoid that, and if neither the public nor elites demand it.     

The Gnomes of Washington: Four Myths of the 1976 IMF Crisis

The IMF settlement of December 1976 looms large in popular and partisan views of the politics of the 1970s. It is argued here that conventional academic wisdom has come to embody several misleading myths about its impact on economic policy. Evidence is presented to challenge four such myths which suggest that the IMF forced the Labour government to launch an attack on public spending, introduce cash limits to control public spending, introduce monetary targets and abandon the pursuit of full employment through demand management.
Although the language of the [IMF] negotiations reflected the arcane terms of international finance… the decisions required of the British Government were profoundly political… behind the technical financial decisions lay fundamental differences over the appropriate balance between the private and public sectors, the priority between capital accumulation and social welfare, the relative weight to be given to incentives and equality… What was at issue was the future shape of the political economy of Great Britain.¹     

Government growth and private contributions to charity

We exploit the time-series properties of charitable giving to provide additional insights into the relationship between charitable contributions and government spending. Cointegration tests reveal a significant long-run relationship between several categories of charitable giving and government spending. Granger causality tests provide evidence on the short-run giving and spending relationship. Evidence suggests that charitable contributions to education respond quite differently to state and local government education expenditures versus federal government expenditures. We argue that the government spending and charitable giving relationship depends on the source of government revenue, how this revenue is used, and the rational ignorance of private donors.     

Public subsidies and charitable giving: Crowding out,crowding in,or both?

Abstract Whether government subsidies to nonprofit organizations leverage (crowd in) private donations, or rather crowd them out has been actively debated for some time. A third hypothesis, explored theoretically and tested empirically in this paper, is that the two phenomena are actually not inconsistent with one another: At low levels of subsidies, government support may stimulate private giving, whereas at high levels it could have just the opposite effect. The model presented is based on this idea, which yields implications relevant to nonprofit management and public policy, and tests it with data on symphony orchestras. The conclusion is that the maximization of private donations and total “unearned” revenues are not compatible goals. Further, nonprofits that suffer from short‐term liquidity problems or managerial shortsightedness may face a “subsidy trap,” in which they are forced to rely on suboptimal levels of subsidies in terms of maximizing the firm's revenues. © 2000 by the Association for Public Policy Analysis and Management.     

Charitable giving in the German welfare state: fiscal incentives and crowding out

There are two ways that government activities influence private charitable giving: (1) government spending on the provision of public goods may cause crowding out of private charitable contributions; and (2) tax incentives may boost private charitable giving. From a sample of German income tax returns, we estimate the elasticity of charitable giving relative to tax incentives, income, and government spending. Using censored quantile regression analysis, we derive results for different points of the underlying distribution of charitable giving. Evaluating overall treasury efficiency, the tax deductibility of charitable donations fosters enough private giving to offset foregone tax revenues.     

Redistribution tax under non-benevolent governments

I analyze redistribution policies of majority governments in one kind of representative voting system. I employ these assumptions: members gain special benefits in the majority; parties act strategically by using redistribution transfers; the member's utility function is given in a quasi-linear function; the government's objective functions are the weighted summation of utilities and I classify governments according to the weight. The four main results are: a stable majority dose not support myopic government; the stable redistribution policy of benevolent government is expressed by a scope of transfers; the stable transfer of non-benevolent governments depends on private utilities of the majority and opportunity costs of the minority; and the altruistic government is not displayed by any other majority, because it offers the total welfare of the majority to the minority as a subsidy.     

Progressive tax policy and informal labor in developing economies

Governments in many industrializing democracies face difficult policy trade‐offs. Liberalization and informality have placed electoral pressure on them to expand noncontributory social spending. However, governments in developing democracies face constraints when attempting to finance this expansion. In some countries, the informal labor market is very large, thereby undermining the revenue that can be collected through income tax. We argue that this has given rise to a paradoxical situation. Left governments in developing democracies with large informal labor markets have a strong electoral incentive to expand welfare regimes to previously excluded outsiders, but to fiscally underwrite this expansion, they have increasingly been forced to fund their redistributive strategies via a regressive policy instrument, indirect consumption taxation. We examine this argument for a sample of 17 Latin American countries between the years 1990 and 2016. Our results suggest that labor informality forces left governments to turn to indirect taxation.     

Does legislative turnover adversely affect state expenditure policy? Evidence from Indian state elections

The effect of legislative turnover on the size and composition of government expenditures in Indian states over the 1980?C2000 period is examined. The paper finds that excessive turnover in Indian state elections results in inefficient government expenditure policy. First, the higher the turnover, the larger the government size. Second, excessive turnover affects the allocative efficiency of government expenditures by skewing the composition of government spending toward pure consumption and away from more productive investment expenditures. Third, the effect of turnover on fiscal policy is not linear; public consumption expenditure is convex in turnover, while public investment expenditure is concave in turnover.