Competitive Governments: An Economic Theory of Politics and Public Finance.

• Author: Wittman, Donald

By Albert Breton.

New York: Cambridge University Press, 1996. Pp. 384. $54.95.

In the standard characterization of a democratic polity, there is a great disjunction between the tax price that the voter faces and the benefit that the voter receives from government policy. This lack of a Wicksellian connection can lead to serious economic distortions. For example, people in the defense industry will vote for too much defense expenditure because they receive a disproportionate amount of the benefits while the tax costs are spread across all of the voters. More generally, because votes for or against a candidate or policy do not register intensity, a majority may enact policies that impose great costs on the minority even when such policies generate very mild benefits for the majority.

Breton argues against this dismal view and shows how different political systems are organized to achieve the Wicksellian connection. Maximization of support and competition are the two main building blocks in his theory. To see how this works, suppose that political parties are interested in maximizing support rather than just maximizing the number of votes. As long as support is a reasonable approximation of net benefits, political parties will weigh costs and benefits of all voters in maximizing support. Hence, there will be an efficient outcome. The key element is competition. From Breton's perspective, there is vertical and horizontal competition among governments as well as among other centers of power (families, religious organizations, and unions), all trying to maximize support. If the central government is not giving people their money's worth on welfare, they will turn to the state governments or religious organizations for solutions.

The book provides many useful insights. Where others see wasteful transfers and redistribution, Breton sees a more benign provision of services. As an example, instead of characterizing lobbying as rent seeking and rent dissipation, Breton sees it as a valuable service - providing information to centers of power in exchange for a better match between desired demand and actual supply. As another example, tax bracketing and special exemptions are not a bending to special interests or a reflection of ignorance regarding incentives but instead are a result of an optimal compliance policy in the presence of monitoring and enforcement costs. As a third example, Brennan and Buchanan (1980) view the collection of taxes by the...