Democracy in Deficit: The Political Legacy of Lord Keynes.

Abstract

The position of Czech public finances has been pronounced unsustainable by economists, while politicians claim more or less the opposite. Correct judgment is complicated by the purposeful use of arguments by the two groups in disagreement, by use of different methodology to collect the data and above all, by the fact that there is no precise benchmark for measuring the sustainability. My work attempts to surpass those complications. It attempts to shed more light on Czech public finances sustainability and to present further arguments, presenting Czech public finances in widest international context possible and using comparable, samemethodology based data, as well as different approaches and angles public sector can be looked upon. Despite my believe that careful reader should be allowed to arrive to his own conclusion, the analysis suggests that concerns of economists about the future development of Czech public finances are legitimate.

Government Expenditures and Tax Revenues in the United States of America

“…Therefore, he claimed that there is a positive correlation running from tax revenues to government spending. Buchanan and Wagner (1977) also claim that the causality between government expenditures and tax revenues is from the latter to the former, however, the sign of the link is negative. They argue that financing the government expenditures via direct taxes causes a fiscal illusion, which implies that citizens consider public goods and services more expensive than they actually are.…”

“…They argue that financing the government expenditures via direct taxes causes a fiscal illusion, which implies that citizens consider public goods and services more expensive than they actually are. This causes a reduction in demand for public goods and services which eventually decreases public expenditures (Buchanan & Wagner, 1977).…”

How to escape from the debt trap: Lessons from the past

“…In democratic political systems, voters tend to punish policymakers for painful reforms (Buchanan & Wagner, 1977). But a backdoor to reduce real public debt without painful reforms is the inflation tax (Lerner, 1955).…”

Public Attitudes Toward Fiscal Consolidation: Evidence from a Representative German Population Survey

“…One of the earliest arguments made in the public choice literature to explain the electorate's apparent debt tolerance is that voters may suffer from 'fiscal illusion', i.e., they lack information about the future costs associated with deficit spending (e.g., Buchanan and Wagner, 1977). Arguably, being able to accurately assess the costs of deficit financing presupposes that voters have sufficient knowledge about the economy.…”

“…Party preference: A widespread conjecture is that public debt incurrence is associated with the government's political ideology-i.e., leftist governments are supposed to be more inclined to rely on deficit spending than are their right-wing counterparts (e.g., Buchanan and Wagner, 1977). Accordingly, supporters of leftist parties may be more tolerant of public indebtedness than supporters of conservative parties.…”