Studies in Public Choice Joshua Hall Bryan Khoo  Editors Essays on Government Growth Political Institutions, Evolving Markets, and Technology Studies in Public Choice Volume 40 SeriesEditor RandallG.Holcombe,FloridaStateUniversity,Tallahassee,FL,USA FoundingEditor GordonTullock,GeorgeMasonUniversity,Fairfax,VA,USA TheStudiesinPublicChoiceseries,inauguratedin1979,isdedicatedtopublishing scholarship in the field of public choice and constitutional political economy. SpringerandSeriesEditor,RandallG.Holcombe,welcomeproposalsforresearch monographs,editedvolumesandreferenceworksinallareasofpublicchoiceand constitutionalpoliticaleconomy. Moreinformationaboutthisseriesathttp://www.springer.com/series/6550 Joshua Hall • Bryan Khoo Editors Essays on Government Growth Political Institutions, Evolving Markets, and Technology Editors JoshuaHall BryanKhoo DepartmentofEconomics CollegeofBusinessandEconomics WestVirginiaUniversity WestVirginiaUniversity Morgantown,WV,USA Morgantown,WV,USA ISSN0924-4700 StudiesinPublicChoice ISBN978-3-030-55080-6 ISBN978-3-030-55081-3 (eBook) https://doi.org/10.1007/978-3-030-55081-3 ©TheEditor(s)(ifapplicable)andTheAuthor(s),underexclusivelicensetoSpringerNatureSwitzerland AG2021 Thisworkissubjecttocopyright.AllrightsaresolelyandexclusivelylicensedbythePublisher,whether thewholeorpartofthematerialisconcerned,specificallytherightsoftranslation,reprinting,reuse ofillustrations,recitation,broadcasting,reproductiononmicrofilmsorinanyotherphysicalway,and transmissionorinformationstorageandretrieval,electronicadaptation,computersoftware,orbysimilar ordissimilarmethodologynowknownorhereafterdeveloped. Theuseofgeneraldescriptivenames,registerednames,trademarks,servicemarks,etc.inthispublication doesnotimply,evenintheabsenceofaspecificstatement,thatsuchnamesareexemptfromtherelevant protectivelawsandregulationsandthereforefreeforgeneraluse. Thepublisher,theauthors,andtheeditorsaresafetoassumethattheadviceandinformationinthisbook arebelievedtobetrueandaccurateatthedateofpublication.Neitherthepublishernortheauthorsor theeditorsgiveawarranty,expressedorimplied,withrespecttothematerialcontainedhereinorforany errorsoromissionsthatmayhavebeenmade.Thepublisherremainsneutralwithregardtojurisdictional claimsinpublishedmapsandinstitutionalaffiliations. ThisSpringerimprintispublishedbytheregisteredcompanySpringerNatureSwitzerlandAG Theregisteredcompanyaddressis:Gewerbestrasse11,6330Cham,Switzerland Acknowledgements The authors would like to thank the Penguin Random House for permission to use materials from Tyler Cowen’s book The Great Stagnation in his paper in this volume. Gordon Tullock’s chapter could not have been reprinted here without the assistance of Mary Lou Gunderson (on behalf of Tullock’s estate) and Hsin-Yi Lin, Professor and Department Chair at the National Chengchi University (whose department published the journal it originally appeared in). The assistance of Dan HouserandPeterBoettkeincontactingMrs.Gundersonisappreciated.Finally,we acknowledgethegeneralresearchsupportfromtheCenterforFreeEnterpriseinthe JohnChambersCollegeofBusinessandEconomicsatWestVirginiaUniversity. v Contents 1 AccountingfortheGrowthofGovernment............................... 1 GaryS.BeckerandCaseyB.Mulligan 2 GovernmentGrowth......................................................... 41 GordonTullock 3 DoesTechnologyDrivetheGrowthofGovernment?.................... 51 TylerCowen 4 HighTaxComplianceResultsinSmallerGovernment.................. 67 MichaelMcKee 5 IncomeTaxEvasionPriortoWithholding................................ 75 RandallG.HolcombeandRobertJ.Gmeiner 6 The Size and Composition of Government Spending in Multi-PartySystems......................................................... 97 CarlosG.ScartasciniandW.MarkCrain 7 ACongressionalTheoryoftheSizeofGovernment ..................... 129 RobiRaganandSachinKhurana 8 TradeandtheSizeofGovernmentRevisited ............................. 145 OlgaHaislip vii Contributors GaryS.Becker UniversityofChicago,Chicago,IL,USA W.MarkCrain LafayetteCollege,Easton,PA,USA TylerCowen GeorgeMasonUniversity,Fairfax,VA,USA RobertJ.Gmeiner KennesawStateUniversity,Kennesaw,GA,USA OlgaHaislip BankoftheWest,SanFrancisco,CA,USA RandallG.Holcombe FloridaStateUniversity,Tallahassee,FL,USA SachinKhurana MercerUniversity,Macon,GA,USA MichaelMcKee AppalachianStateUniversity,Boone,NC,USA CaseyB.Mulligan UniversityofChicago,Chicago,IL,USA RobiRagan MercerUniversity,Macon,GA,USA CarlosG.Scartascini Inter-AmericanDevelopmentBank,Washington,DC,USA GordonTullock GeorgeMasonUniversity,Arlington,VA,USA ix Chapter 1 Accounting for the Growth of Government GaryS.BeckerandCaseyB.Mulligan Abstract Why has government grown in so many countries during the twentieth century?Wepresentasimplemodelofpoliticalcompetitionandshowhowdifferent sourcesofthegrowthofgovernmenthavedifferenteffectsontheamountandstruc- ture of taxes, spending, and regulatory programs undertaken by the government. Those sources include: demographic shifts, more efficient taxes, more efficient spending, a shift in the “political power” from those taxed to those subsidized, shifts in political power among taxed groups, and shifts in political power among subsidized groups. We also show how the effects of each source varies according tothemodelofpublicdecision-making.Basedonavarietyofempiricalindicators of regulation, we suggest that regulation has grown from 1890 to 1990, but less rapidly than tax revenues. Regulation grew more slowly during the 1980s and, according to some measures, declined. We suggest that the long term regulatory and budgetary trends are consistent with growth in the political power of those subsidized—especially the elderly. The 1980s decline in regulation together with its growth in taxes is not consistent with any one of the theories of government growth. 1.1 Introduction Why has government grown in so many countries during the twentieth century? Many explanations have been proposed, explanations ranging from an increased demand for government services to changes in the distribution of skill. Our study helps estimate the importance of each theory by partitioning the set of Theauthor“GaryS.Becker”isdeceasedatthetimeofpublication. G.S.Becker((cid:2))·C.B.Mulligan UniversityofChicago,Chicago,IL,USA e-mail:[email protected];[email protected] ©TheEditor(s)(ifapplicable)andTheAuthor(s),underexclusivelicenseto 1 SpringerNatureSwitzerlandAG2021 J.Hall,B.Khoo(eds.),EssaysonGovernmentGrowth,StudiesinPublic Choice40,https://doi.org/10.1007/978-3-030-55081-3_1 2 G.S.BeckerandC.B.Mulligan possibleexplanationsaccordingtotheirimplicationsforthequantity,composition, and incidence of taxes, spending, and regulation. The partition is the following categories: (i) increasesintheefficiencyoftaxes,spending,and/orregulation (ii) decreases(increases)inthepoliticalpoweroftaxpayers(thosesubsidized) (iii) changesinthepoliticalpowerofparticulartaxpayingorsubsidizedgroups (iv) demographicshifts Webeginwithaninterestgroupmodeltoderivetheimplicationsof(i)–(iv)for the quantity, composition, and incidence of taxes, spending, and regulation. The “socialredistribution”and“meritgood”modelsoftenhavesimilarimplicationsfor the effects of (i)–(iv) on taxes, spending, and regulation; we discuss those cases whenthethreemodelsdiffer. WepresentsomeevidenceonthegrowthofAmericanfederal,stateandmunic- ipal spending together with some crude aggregate measures of federal regulation over the period 1890–1990, and the sub-periods 1890–1930, 1930–1980, 1980– 1990.Improvementsinthemeasurementofthequantity,composition,andincidence of regulation are desperately needed, but the empirical analysis serves three purposes.First,itillustrateshowonemightaccount forthegrowthofgovernment using our framework. Second, we compare a variety of aggregate measures of federal regulation and show how each of them apparently grows less rapidly than taxesandspending.Third,weoffersometentativeconclusionsregardingthesources ofthegrowthofgovernment.Growthinthe“politicalpower”oftheelderlyappears to be an important source of the growth of government because both spending and regulation benefitting the elderly has grown relatively rapidly over the entire period—and probably over each of the sub-periods. More efficient means of tax collectionmayhavefacilitatedthegrowthofgovernmentbetween1890and1980, since non-elderly government programs have also grown (albeit less slowly) and spendingapparentlymorerapidlythanregulation.The1980switnessedareduction in regulation, an increase in government spending (although at a slower rate than for previous periods), and a constant share of government spending on the elderly despite their substantial growth in numbers, which we cannot explain with any singleoneofthetheoriesweconsider. Weshowhow,inprinciple,astudyofthequantity,composition,andincidenceof taxes,spending,andregulationcannotonlydistinguishamongpotentialcausesfor the growth of government, but also among the various models of public decision- making by which those causes affect public policy. This proves to be difficult in practicebecauseeachofthemodelsconsidered—interestgroupcompetition,social redistribution,andmeritgoods—haveincommonthemajorityoftheirimplications forpublicpolicyresponsestovariousstimuli.If,asourevidencesuggests,increased tax efficiency and power of the elderly are the main stimuli, then all three public decision models predict the same changes in the composition of spending and regulation.Thethreemodelsdodifferaccordingtotheirpredictionsfortheamount andincidenceofnon-elderlyregulation,butnotenoughisknownaboutregulation forustofavoronemodelovertheothers.