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The broken bridge of public finance: majority rule, earmarked taxes and social engineering

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  • William F. Shughart II

    (Utah State University)

  • Josh T. Smith

    (Utah State University)

Abstract

Nobel laureate James Buchanan was influenced substantially by Knut Wicksell’s arguments in favor of unanimous consent or “qualified majorities” for approving or rejecting specific public spending programs. Buchanan thought of Wicksell’s recommendation that spending proposals be tied to dedicated revenue sources as way of erecting a bridge between the two sides of the public budget, thereby forcing politicians to face the same tradeoffs as individuals do when formulating their spending plans. We examine the history of Buchanan’s ideas on public finance and discuss how legislative processes have demolished the bridge between public expenditures and public revenues. In modern practice, tax “earmarking”, whereby local, state and federal governments ostensibly finance specific spending programs with the revenues raised by targeted consumption taxes, often becomes a smokescreen hiding the opportunistic reallocation of taxpayers’ monies to finance unrelated policies or programs. Taxes on sugar-sweetened beverages provide our main case study. Other examples from public finance, past and present, such as selective excise taxes on cigarettes, lottery tickets and motor fuels, along with Alexander Hamilton’s tax on whiskey to pay Revolutionary War debts also are examined.

Suggested Citation

  • William F. Shughart II & Josh T. Smith, 2020. "The broken bridge of public finance: majority rule, earmarked taxes and social engineering," Public Choice, Springer, vol. 183(3), pages 315-338, June.
    • Handle: RePEc:kap:pubcho:v:183:y:2020:i:3:d:10.1007_s11127-020-00809-2
    DOI: 10.1007/s11127-020-00809-2
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    Cited by:

    1. Daniel J. Smith, 2020. "James M. Buchanan centennial birthday academic conference: an introduction to the special issue," Public Choice, Springer, vol. 183(3), pages 223-226, June.
    2. Peter T. Leeson & Henry A. Thompson, 2023. "Public choice and public health," Public Choice, Springer, vol. 195(1), pages 5-41, April.

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    More about this item

    Keywords

    Knut Wicksell; James Buchanan; Tax earmarking; Selective consumption taxes; Externalities; Internalities;
    All these keywords.

    JEL classification:

    • D6 - Microeconomics - - Welfare Economics
    • D7 - Microeconomics - - Analysis of Collective Decision-Making
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

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