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The Theory of Public Choice

Although the market sometimes fails, the government is not perfect either. Since public economic activities are complicated, even an idealistic government cannot attain the best solution. For example, in Chap. 2 we discussed the possibility of policy lags. Thus, the benevolent government cannot necessarily behave optimally. Moreover, because of bureaucratic problems and so on, the government does not

© Springer Science+Business Media Singapore 2017 329

T. Ihori, Principles of Public Finance, Springer Texts in Business and Economics,

DOI 10.1007/978-981-10-2389-7_12

necessarily maximize social welfare in a political economy. Thus, we may not assume the idealistic government in reality.

Many people agree with the conjecture that governments fail to some extent. Indeed, many examples exist of the bad behavior of governments. Such behavior involves corruption, bribes, and rent seeking. Based on this background, it seems plausible to assume that the objective of governments is not idealistic or benevolent but realistic and biased in the sense that they simply adjust the conflicts of various interest groups such as politicians, bureaucrats, and voters.

The theory of public choice examines government behavior from the viewpoint of such a realistic understanding. According to this theory, government policy is not perfect. Further, a government fails even if the market is not perfect; hence, the governmental role is needed. The objective of government itself is biased. Thus, we need to consider the inefficiency of government behavior.

J. M. Buchanan, a founder of public choice theory, first emphasized the failure of government in a public finance context in his book, Public Finance in Democratic Process: Fiscal Institutions and Individual Choice (1967). Standard public economics normally investigates idealistic policies. However, the public choice approach focuses on the actual political process of fiscal management based on the biased objective of government. It should also be stressed that the public choice approach is not the only one to investigate the political aspect of public finance. Actually, many researchers have recently investigated the economic implications of public finance in a political economy. A typical topic is a voting model, as explained in Sect. 2 below.

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