Publication Details

Eusepi, G. & Wilson, E. (2014). In war as well as in peace: from the displacement effect to incrementalism in public expenditures. Annual Meeting of the Public Choice Society (pp. 1-20).

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Annual Meeting of the Public Choice Society


The paper will study the trend in public expenditure starting from the Peacock and Wiseman (1961)'s contribution known as displacement effect. In our view, the notion of displacement effect is important not for its capability to capture essentials in the mechanisms governing taxing and spending areas in public economy, but rather for what it does not explain: incrementalism in public expenditure. According to Peacock and Wiseman, wars allow governments to drastically increase expenditure without constraining government to go back to the pre-war levels once the war is over. Our main point is that the unbridled increase in public expenditure during the past half century has taken an unfortunate detour under the influence of the theory of incrementalism in public expenditures. The hallmark of this kind of policy is that, at the most, it allows governments to set limits to increases in public expenditures rather than to cut them. One could provocatively say that governments do not need scissors because they have nothing to cut. By bringing in an analysis of the US and some European governments, we demonstrate that there are two related reasons for considering the theory of incrementalism as a key player in the ever increasing public expenditure of a no-war period: an improper extension of the separation of powers to budgets on one hand allowing bureaucracies to actively increase public spending on the other. This incrementalism is responsible for post war systematic deficit financing and concomitant increases in the stocks of public debt.

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