Robert, I see from the internet that "fiscal consolidation" has been
popular for several years now. I assume that your request pertains to
democracy.
Here is a good answer from Answers.com.
FISCAL CRISIS
Actual or supposed inability of the state to raise enough tax revenue to
pay for its programme. Theories of fiscal crisis were widespread in the
1970s, both among Marxists such as James O'Connor (/The Fiscal Crisis of
the State/, 1973), and non-Marxists such as Samuel Brittan (/The
Economic Consequences of Democracy/, 1977). These writers argued that no
government could extract more in tax revenue without imperilling liberal
democracy, nor could it cut services. Theories of fiscal crisis appeared
to be discredited in the 1980s. In the United Kingdom, the Thatcher
administrations lowered the top marginal rates of income tax. Because
the burden of tax was shifted to indirect taxes
<http://www.answers.com/topic/fiscal-crisis#>, especially value added
tax, enough people seem to have believed the false claim that the burden
of tax had been reduced for democracy to survive. In the United States,
there were significant tax reforms 1981 and 1986, which again broadened
the tax base and cut marginal rates of income tax. New Zealand
introduced a tax reform of similar scope. So long as taxes are collected
in imperceptible ways—such as through National Insurance
contributions—it seems that fiscal crisis can be put off.
But it may recur. The ageing of the population in advanced capitalist
states means that health and social security expenditure per head must
rise sharply to maintain the same level of service, to be paid for by
levies on the economically active, who form a declining proportion of
the population. Generally, politicians are unwilling to admit to this
harsh truth, so it is predictable that talk of fiscal crisis will recur
when the illusions cease to work.
Read more: http://www.answers.com/topic/fiscal-crisis#ixzz1InKLYFzr
There were debates during the 60s and 70s over (1) the burden of the
debt, although these were about a debt that did not threaten fiscal
insolvency or an inflation to reduce it, and (2) the size and growth of
government. A contribution to that literature was the ratchet effect by
Robert Higgs. Rough descriptions of this literature are available
through Wikipedia, I believe.
http://search.yahoo.com/search?p=+rachet+effect+%22growth+of+government%22&ei=UTF-8&fr=moz35
If I go way back, I can recall hearing about debates among the founders
regarding the outcome of allowing universal suffrage. As I recall, at
the time the US was formed, only landowners for the most part were
allowed to vote in many if not all of the various states. (Not even all
MEN were equal!) The worry was that if everyone was permitted to vote,
the poor would demand laws that discriminated against the rich. Perhaps
the current fiscal crisis in the US is partly a delayed legacy of the
expansion of suffrage over the last 150 years.
Also, a search of James M. Buchanan and "fiscal crisis" turns up some
interesting results.
http://search.yahoo.com/search?p=%22James+M.+Buchanan%22+fiscal+crisis&ei=UTF-8&fr=moz35
My own view is that economists have not very well succeeded in teaching
the basic lessons of (1) the marvel of capitalism (as opposed to
imperialism) and (2) the limitations of collective decision making (the
field of "public choice"). So the typical educated citizen does not have
much of a clue regarding how to evaluate a program aimed at reducing
spending or raising taxes. (Fortunately, due to the expansion of the
internet, one can learn some of these lessons by watching "Freedom
Watch" and "Stossel" on the Fox business channel, although this channel
seems to be excluded from some markets.)
Democracies make it possible to resolve property conflicts peacefully,
but the jury is still out on their ability to avoid a deterioration of
the institutions required to maintain a vibrant capitalist system. At
the other extreme, a socialist democracy that takes advantage of the
potential higher productivity of the division of labor, a la Smith, is
not even possible (see Ludwig von Mises's "Socialism"). A democratic
nation may flounder and stagnate, like India did for most of its
history. Its only hope for growth, however, is to institute the
institutions required to establish and maintain a capitalist system.
One other point. A substitute for fiscal consolidation is money creation
and subsequent inflation. We haven't heard much about this in the public
debates. A return to the work of Milton Friedman on this issue might be
in order as a complement to the study of the historical roots of fiscal
consolidation.
On 4/6/2011 3:40 PM, gb wrote:
> I would be most grateful to know the historical roots of fiscal
> consolidations, the debates, and the major theoreticians.
>
> The global financial crisis and the subsequent recession increased
> government outlays for transfer payments to households and reduced tax
> receipts in the United States and other developed countries. In
> addition, the U.S. and some other governments recapitalized failing
> banks, insurers, and other firms and initiated Keynesian “stimulus”
> programs containing one-time rebates, even higher transfer payments to
> households, and additional government spending on infrastructure.
> Consequently, government budget deficits and government debt as a
> percentage of GDP rose sharply. The IMF and other international
> financial organizations called upon countries to create a “credible
> plan for a fiscal exit” and avoid a government debt crisis.They
> recommended a fiscal consolidation program that would reduce
> government budget deficits and stabilize government debt as a
> percentage of GDP.
> A fiscal consolidation program may accomplish its goals by either
> reducing government spending or increasing government receipts
> (including tax increases, higher user fees, and asset sales).
> Many thanks,
> Gordon L. Brady, Ph.D., M.S.L.
> Senior Economist
> Joint Economic Committee
> United States Senate
> 242 Ford Building
> Washington, DC
> [log in to unmask]
> 202-225-6024
>
>
--
Pat Gunning
Professor of Economics
Melbourne, Florida
http://www.nomadpress.com/gunning/welcome.htm
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