Fiscal Policy: Lessons from Economic Research.

• Author: Bowman, Woods

Auerbach, Alan J., ed.

Cambridge, MA: The MIT Press, 1997. (475 pp)

Reviewed by Woods Bowman, Assistant Professor of Public Service at DePaul University in Chicago, Illinois, and an advisor to the GFOA Committee on Governmental Budgeting and Management.

Economists and practitioners often talk past each other, so it is refreshing that the Robert D. Burch Center for Tax Policy at the University of California organized a symposium in 1996 to articulate the lessons learned from scholarly research for the benefit of economic policy makers. The result is this book, a collection of nine papers, each accompanied by commentary of two experts, covering a broad range of topics.

The papers have a national, top-down perspective. Only three chapters are likely to find a wide audience among local government officials, notably "Do budget rules work?", "Federalism as a device for reducing the budget of the central government," and "Work, welfare and family structure: What have we learned?" Several chapters on health care and taxation of multi-national corporations will be of interest to specialists, while others, such as privatizing Social Security, savings incentives, and tax/investment policies, will find even smaller audiences. Despite the fact that phrases like "Pareto optimal" and "Coasian bargain" crop up occasionally, the papers are quite accessible to the general reader.

Fiscal Policy will give a reader with broad interests a good overview of today's most vexing domestic economic issues. Local government officials would do well to get acquainted with them because all have implications for budget management. For example, an increased saving rate will reduce the rate of growth of consumption-based taxes, mainstays of state and local government. If a change in federal tax policy toward multinational corporations makes it more likely that certain industries shift production offshore, the consequences will be felt in company towns throughout the U.S. Fiscal Policy probably raises more questions than it answers, but many of them might not occur to a thoughtful finance officer without the stimulus of a book like this.

For the more practical reader, there are useful tidbits scattered throughout. James Poterba, after examining several empirical studies, concludes that markets...