Abstract
Why has government grown in so many countries during the twentieth century? We present a simple model of political competition and show how different sources of the growth of government have different effects on the amount and structure 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 to the model of public decision-making. Based on a variety of empirical indicators 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.
The author “Gary S. Becker” is deceased at the time of publication.
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Notes
- 1.
Summers et al. (1993), for example, suggest that some labor market regulations decrease the marginal deadweight cost of labor income taxes. The Council of Economic Advisors (2019b) concludes that entry regulations increase the marginal deadweight cost of taxes by, in effect, allowing the businesses in the industry to jointly administer an excise tax.
- 2.
Another way of stating this assumption is that F T is independent of A R and B R while F R is independent of A T and B T.
- 3.
Becker and Mulligan (2003) emphasize that δ parameterizes “tax efficiency” in the sense that (for Δ ′ > 0) a lower δ means lower average and marginal deadweight costs of taxes for any given amount of taxes to be collected.
- 4.
(F ab)2 − F aa F bb > 0 at an equilibrium is sufficient for the equilibrium to be “stable.” − F b F aa∕(−F a) < F ab < F a F bb∕F b at the equilibria is necessary and sufficient for the equilibria to be “strategically separable.” If the influence functions are either additively separable or homogeneous of degree zero, then any Nash equilibrium is stable and strategically separable.
- 5.
- 6.
With three groups, more complicated restrictions on the pressure and deadweight cost functions are required to guarantee that any Nash equilibrium is stable and strategically separable. Additively separable influence functions and nonconcave deadweight cost functions are sufficient but not necessary.
- 7.
The limiting case is F(A, B) proportional to B − A.
- 8.
- 9.
This point is made by Becker (1983).
- 10.
For example, Warner and Asch (1996) and others have suggested that conscription is efficiency enhancing.
- 11.
In order to sign the effect of war on regulation, we need to make additional assumptions about the effect of war on the struggle between A’s and B’s. If, holding pressure constant, the effect of war is to increase total taxes and spending without reducing nondefense spending, then the increased resistance by taxpayers will result in a net decrease in regulation. If, holding pressure constant, the effect of war is to reduce nondefense spending without increasing taxes, then the increased pressure by those subsidized will result in more regulation.
- 12.
Olson (1986) appropriately qualifies the argument, pointing out that free-riding among subcoalitions of a “collective” organization might be just as important as the free-riding among organizations.
- 13.
Proof available upon request.
- 14.
We have only computed Congressional Committee Staff sizes for the years 1891, 1914, 1930, 1935, 1947, 1950, 1955, 1960, 1965, and 1970–1990 so any high frequency variation in the associated regulation measure is from the real GNP series used in the normalization.
- 15.
Figure 1.2 includes an adjustment for the passage of the Freedom of Information, the Privacy, and the Sunshine Acts between 1967 and 1974. The Acts require additional reporting in the FR by Federal government agencies of their activities and contributed to the tripling of the page counts between 1967 and 1975 (United States Office of the Federal Register 1980, p. 1). We adjust all page counts after 1970 by a factor of 0.8, an adjustment which implies that 20% of the pages would not exist in the absence of the acts and that the Acts were responsible for roughly one third of the 1967–1975 page count growth. Otherwise, our examinations suggest that the font size and legalese of the FR have been constant over time.
- 16.
As a measure of regulation, Congressional Staff Sizes also share many of the shortcomings of FR pages: large Congressional staffs might indicate an increased flow of regulation rather than a larger stock; staff sizes might be larger when lots of deregulation or reregulation occurs.
- 17.
Tax law is part of the US Code, so growth in government revenues could lead to an increase in US Code pages without a real increase in regulation. We have therefore measured the nontax pages in the US code (i.e., excluding Title 26) for the years 1970–1994, and find nontax pages to increase by the same proportion as total pages over the entire period. Relative to nontax pages, Title 26 pages grew somewhat more 1970–1982, and somewhat less 1982–1994.
- 18.
For a discussion of the validity of this approach, see US General Accounting Office (1995). We have been unable to determine how Hopkins estimated the cost of Price and Entry Controls.
- 19.
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Acknowledgements
We appreciate the comments of John Dawson, Dan Kahan, Ed Laumann, Bill Landes, Sam Peltzman, John Wallis, and seminar participants at Clemson University, and the research assistance of John Allread and Rob McMillan. This article is an unfinished draft from April 2000, plus an Appendix section on accounting for other sources of government growth drafted in December 2002. Since then much progress has been made on measuring regulation, including text processing methods (Al-Ubaydli and McLaughlin 2017), selection based on comments (Council of Economic Advisors 2019a), and questions of how to normalize regulation relative to population (Mulligan and Shleifer 2005).
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1.7 Appendix
1.7 Appendix
1.1.1 Data Sources
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Congressional Staff Sizes 1980–1990: Bibby et al. (1980). 1891–1979: Bibby et al. (1980, citing Fox and Hammond 1977). For all years, Congressional Member staff size is computed as the sum of House and Senate Member Staff sizes; Congressional Committee staff size is computed as the sum of House and Senate Committee Staff sizes.
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Congressional Staff Sizes 1980–1990: Bibby et al. (1980). 1891–1979: Bibby et al. (1980, citing Fox and Hammond 1977). For all years, Congressional Member staff size is computed as the sum of House and Senate Member Staff sizes; Congressional Committee staff size is computed as the sum of House and Senate Committee Staff sizes.
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Federal Register Pages Total number of pages in the each year’s Federal Register, multiplied by 0.8 after 1970 (an adjustment for the passage of the Freedom of Information, the Privacy, and the Sunshine Acts between 1967 and 1974). With the exceptions of 1936, 1937, and the first 1100 pages of 1938, all of the years appear to be of the same font, point, and format: three column pages, 78 lines to the column, approx. seven words to the line. Source: United States Office of the Federal Register (Various issues).
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GNP 1965–1990: Citibase GNP series, calendar year average of quarterly values. 1890–1964: US Bureau of the Census (1975), Series D-802 (calendar year values, multiplied by 1.034 to merge with Citibase series).
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Government Employment, Federal (w/o Military and Post Office). 1971–1990: US Office of Management and Budget (1996), Tables 17.2 and 17.3 (Legislative and Judicial Branches plus Civilian Agencies). 1890–1970: US Bureau of the Census (1975), Series Y-315, Y-316, Y-317 (Executive Branch, excluding military and Post Office, plus Legislative and Judicial Branches).
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Government Employment, All Levels (w/o Military and Post Office). 1971–1990: Federal series plus State and Local from US Office of Management and Budget (1996), Table 17.3. 1890–1970: Federal series plus US Bureau of the Census (1975), Series Y-332 (State and Local government employment).
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Government Expenditure, All Levels. 1947–1990: US Office of Management and Budget (1996), Table 15.2 (fiscal year expenditures). 1890–1946: US Bureau of the Census (1975), Series Y-522 (fiscal year expenditures, multiplied by 1.131 to merge with OMB series). Series Y-522 available only in the years 1902, 1913, 1922, 1927, and in the even years 1932–1946; missing years linearly interpolated as a fraction of GNP.
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Government Expenditure, Federal Defense. 1965–1990: US Office of Management and Budget (1996), Table 4.1 (fiscal year “military-defense” outlays), minus $1.624 (the average difference between the OMB and Census Bureau series for the overlapping years 1963–1970). 1890–1964: US Bureau of the Census (1975), Series Y-458 and Y-459 (fiscal year outlays for Departments of Army and Navy).
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Government Expenditure, Elderly. Mulligan and Sala-i Martin (1999).
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Regulatory Costs. Hopkins (1996).
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U.S. Code Pages. Total number of pages in each volume of the U.S. Code of Federal Regulations (which has been issued every six years since 1926). Words per page appear to be the same in each volume. As explained in the text, we also look at U.S. Code pages net of (tax) Title 26. Source: United States Office of the Law Revision Counsel (Various issues).
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U.S. District Civil Court Cases, all categories. U.S. District Civil Court cases commenced in the year ending June 30 (1960–1990) or September 30 (1991–), according to Judicial Conference of the United States (a.k.a. Judicial Business of the United States) Tables C-2 and C-3. Source: Judicial Conference of the United States (Various Years).
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U.S. District Civil Court Cases, Social Security. U.S. District Civil Court Social Security cases commenced in the year ending June 30 (1960–1990) or September 30 (1991–), according to Judicial Conference of the United States (a.k.a. Judicial Business of the United States) Tables C-2 and C-3
1.1.2 Accounting for Other Sources of Government Growth
See Table A.1.
1.1.3 Tax-Regulation Substitution Across Countries
The time series data suggest that growing tax efficiency can be only part of the reason for tax revenue growth, because regulations are growing at the same time. But some recent cross-country regulation data sets seem to tell a somewhat different story. One of them is Nicoletti et al. (1999), whose OECD measures of labor and product market regulation are weakly, and negatively, correlated (−0.12 and −0.09, respectively) with total government revenue/GDP (averaged for the years 1970–1990). Djankov et al. (2002) have a measure of business entry regulation for a broader cross-section of countries, and it is strongly negatively correlated (−0.48) with tax revenue/GDP.
Becker and Mulligan (2003) use two measures of tax efficiency—the ratio of efficient tax revenue (i.e., revenue from payroll and sales taxes) to other government revenue and the ratio of the average individual income tax rate to the top marginal rate—which tend to be positively correlated with taxes/GDP, holding constant GDP per capita, the fraction of the population elderly, trade openness, and other variables. But is tax efficiency correlated with regulation? Appendix Table A.2 explores this question in the OECD sample with Nicoletti et al.’s (1999) product and labor regulation measures, and Appendix Table A.3 uses the broader country sample with the business entry regulation measure. We see that both measures of tax efficiency predict the amount of regulation—better than they predict taxes/GDP (!)—although the sign of the relation is different for the two tax efficiency measures. We also see that variables predicting taxes/GDP, such as the fraction elderly and trade openness, do not predict regulation.
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Becker, G.S., Mulligan, C.B. (2021). Accounting for the Growth of Government. In: Hall, J., Khoo, B. (eds) Essays on Government Growth. Studies in Public Choice, vol 40. Springer, Cham. https://doi.org/10.1007/978-3-030-55081-3_1
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