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Public Finance in Democratic Process: Fiscal Institutions and Individual Choice; Buchanan, James M.
5 paragraphs found.
Ch. 12, From Theory to the Real World

We have emphasized that this study is limited to the individualist-democratic model of political order. The analysis of fiscal institutions must, therefore, begin with the choices made by the individual participant in collective fiscal decisions. It is important once again to stress that the foundations of a theory of individual fiscal choice in this respect do not exist. Any work here must commence with such foundations and build gradually toward what will hopefully become a comprehensive structure. The methodology of this book embodies as its central proposition the hypothesis that individuals make fiscal choices. They do determine the size of the public sector, along with the distribution of the costs and benefits. This being the case, it follows that their choices may be influenced by the institutions through which the fiscal process takes form. People will tend to respond differently under different institutions, and it is this set of responses that this book explores.

Ch. 14, The Levels of Fiscal Choice

We know, however, that the traditional approach contains few attempts to justify the empirical relevance of any of the benefit imputations required to legitimatize its methodology. Secondly, we know that the public goods and services actually supplied by governments do not fully qualify as "general" in the sense indicated. For some such goods and services, benefits, both total and marginal, are differentially made available to individuals and subgroups within the larger community. When this is recognized, the traditional neoclassical approach to tax principles seems to contain little that is worth preserving, and scientific advance seems to require that it be discarded.


This reaction, upon more careful consideration, seems premature. The institutional approach that Part II of this study opens up serves to rehabilitate, in a qualified sense, the neoclassical methodology in general terms, if not in its specific logic. At least in some circumstances, it may prove desirable and efficient for the choice among the institutions of taxation to be divorced from the choice among spending programs. The argument for such a partitioning of the fiscal decision process is based on the presumption that the institutions of taxation, which determine the distribution of the costs of providing public goods and services among members of the group, may be quasi-permanent or "constitutional" elements of the political-social structure whereas spending programs, which determine the distribution of the benefits of public goods and services among the members of the group, may be relatively impermanent or temporary phenomena. Whether or not this distinction is empirically relevant can only be determined by real-world events. But to the extent that it becomes so, we may discuss the individual's calculus of choice among tax instruments quite apart from any specific assumptions about the spending side.

Ch. 16, Specific Excise Taxation

In recent decades, the choice between direct and indirect taxes has been discussed in terms of the now-famous excess-burden theorem, initially stated by Barone, *84 later elaborated many times, and, more recently, subjected to several criticisms. Broadly speaking, it seems correct to say, despite the acknowledged relevance of second-best arguments, most modern scholars would accept the view that, other things equal, direct and general taxes are to be recommended over indirect and specific taxes on both equity and efficiency grounds. Employing the methodology previously applied, I shall demonstrate that this widespread conclusion cannot be supported. As was the case with income-tax progression, the purpose of the analysis is not to defend specific commodity taxation, per se, but to use the traditional direct tax-indirect tax comparison to illustrate the efficacy of the general institutional approach to fiscal choice.

Ch. 19, Fiscal Nihilism and Beyond

The methodology for the analysis of institutional efficiency is drawn from several sources: the modern theory of statistical inference, the theory of games, the theory of political constitutions, and, also, recent philosophical discussions of "justice." *106 This latter discussion is especially relevant since it allows us to relate the institutional-choice approach to the traditional discussion of justice or equity that has occupied so much of the fiscal literature. The methodology that embodies as its characteristic feature a sharp differentiation between the outcomes of a choice process and the rules or institutions that generate such outcomes is, of course, wholly different from the traditional approach in fiscal theory.