Choosing Size of Government Under Ambiguity: Infrastructure Spending and Income Taxation
AbstractAttempting 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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18204.
Date of creation: Jul 2012
Date of revision:
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Web page: http://www.nber.org
More information through EDIRC
Find related papers by JEL classification:
- H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
- J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-07-14 (All new papers)
- NEP-PBE-2012-07-14 (Public Economics)
- NEP-TRE-2012-07-14 (Transport Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Charles F. Manski, 2005.
"Search Profiling with Partial Knowledge of Deterrence,"
NBER Working Papers
11848, National Bureau of Economic Research, Inc.
- Charles F. Manski, 2006. "Search Profiling With Partial Knowledge of Deterrence," Economic Journal, Royal Economic Society, vol. 116(515), pages F385-F401, November.
- William A. Brock & Charles F. Manski, 2011. "Competitive Lending with Partial Knowledge of Loan Repayment: Some Positive and Normative Analysis," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43, pages 441-459, 03.
- Charles F. Manski, 2011. "Choosing Treatment Policies Under Ambiguity," Annual Review of Economics, Annual Reviews, vol. 3(1), pages 25-49, 09.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.