(eBook PDF) Public Finance And Public

Choice: Analytical Perspectives

Go to download the full and correct content document:
https://ebooksecure.com/product/ebook-pdf-public-finance-and-public-choice-analytic
al-perspectives/
More products digital (pdf, epub, mobi) instant
download maybe you interests ...

(eBook PDF) Public Finance and Public Policy 5th

Edition

http://ebooksecure.com/product/ebook-pdf-public-finance-and-
public-policy-5th-edition/

Public Finance and Public Policy 5th Edition (eBook

PDF)

http://ebooksecure.com/product/public-finance-and-public-
policy-5th-edition-ebook-pdf/

(eBook PDF) Microeconomics: Private and Public Choice

16th Edition

http://ebooksecure.com/product/ebook-pdf-microeconomics-private-
and-public-choice-16th-edition/

(eBook PDF) Microeconomics Private and Public Choice

15th Edition

http://ebooksecure.com/product/ebook-pdf-microeconomics-private-
and-public-choice-15th-edition/
(eBook PDF) Public Finance Public Policy 6th Edition by
Jonathan Gruber

http://ebooksecure.com/product/ebook-pdf-public-finance-public-
policy-6th-edition-by-jonathan-gruber/

Economics: Private & Public Choice 17th Edition James

D. Gwartney - eBook PDF

https://ebooksecure.com/download/economics-private-public-choice-
ebook-pdf/

Macroeconomics: Private & Public Choice 17th Edition

James D. Gwartney - eBook PDF

https://ebooksecure.com/download/macroeconomics-private-public-
choice-ebook-pdf/

Space Science and Public Engagement: 21st Century

Perspectives and Opportunities - eBook PDF

https://ebooksecure.com/download/space-science-and-public-
engagement-21st-century-perspectives-and-opportunities-ebook-pdf/

(eBook PDF) Public Policy in Action Perspectives on the

Policy Process

http://ebooksecure.com/product/ebook-pdf-public-policy-in-action-
perspectives-on-the-policy-process/
 PREFACE AND ACKNOWLEDGEMENTS TO THE SECOND EDITION vii

The first volume of the journal International Tax and Public Finance has a symposium on the
future of public economics (public finance or fiscal economics depending on the author) build
around a survey by Pestieau (1994) of the opinions of public finance economists essentially on the
issue of ‘whither public choice after the golden decade of the 1970s’. The short contributions
where interesting in a number of ways. Some of the responses echoed themes (luckily?) already
part of the first edition others, such as a greater emphasis on international issues, are reflected in
this edition. All of the respondents were noted public sector economists (Musgrave, Brennan,
Slemrod and Besley) and either explicitly or implicitly offered very different judgements and
perspectives which confirmed, to us at least, that the premise of the first edition, that there is
sharp contrast of serious opinion and analysis, remains. Whilst some authors seemed to hanker
after a consensus view, this edition continues in the vein of the first edition in suggesting that it
is the lack of consensus that is interesting and the conflict of ideas and analysis that cannot be
‘amalgamed’ by academic mercury that is the continuing status quo.

REFERENCES

Jones, P. R. and Cullis, J. G. (1993) ‘Public Choice and Public Policy: The Vulnerability of Economic
Advice to the Interpretation of Politicians’, Public Choice, 75, 1, pp. 63–77.
Pestieau, P. (1994) ‘The Current State and Future Directions of Public Finance’, International Tax and
Public Finance, 1, 2, pp. 169–74.
Preface and acknowledgements to the
First Edition
At the risk of ‘signalling’ ourselves among the people who can’t do, teach or carry out research
(see Blaug 1970, p. xv), we have written a textbook. This book is partly the result of accident and
partly the result of design. The accident was the amicable collapse of plans to produce an
Anglicized version of R. A. Musgrave and P. B. Musgrave, Public Finance in Theory and Practice,
now in a fifth edition. The design was the feeling that insufficient attempt is generally made in
existing texts fully to recognize and incorporate alternative views or perspectives in public finance
(see Gravelle 1989). Buchanan (1989), Nobel Laureate for his work on public choice, clearly feels
this, writing of ‘the insider Harvard–Musgrave vision’ and ‘the outsider Chicago–Virginia . . .
vision’ (p. 291) in his review of Musgrave’s collected writings. With this in mind, we have
attempted to write a book that does capture the picture of ‘big names’ saying very different things
about the same topic or finding different topics more or less important. In short, we have tried to
highlight intellectual friction rather than consensus in the field of public finance by, so far as we
found possible, introducing in each chapter the traditional ‘social optimality’ perspective along-
side alternatives, the majority of which are drawn from the public choice school. Some of these
alternatives are drawn from other social science disciplines.
We have outlined our own position more fully elsewhere (see Cullis and Jones 1987), which, to
summarize drastically, finds the framework of the public choice school an attractive one.
However, given its almost blanket anti-public-sector criticism in what has become known as the
Leviathan debate/hypothesis, we would argue that its critique of government needs to be more
firmly set against the failings of the market. In sentiment, this puts us closer to the Musgrave
position that ‘a Democratic society is more likely to flourish in a mixed economy, one where a
public sector is needed to supplement the market’ (Musgrave 1989, p. 7). Against this background
of inevitable personal bias, we have tried to outline the positions of authors we review and to use
(rather than critically assess) their contributions. The objective has been to create a ‘cut, thrust
and parry’ approach as opposed to a ‘cut and dried’ one. The emphasis is everywhere on the ana-
lytical principles involved in the various arguments at the expense of both institutional detail and
current statistical material. Those looking for a ‘stat. attack’ on the public sector will not find it
here. However, this is not to imply that empirical results and some relevant statistics are com-
pletely ignored, rather, they have not been our primary focus.
If we have been at all successful in meeting our objective, this reflects the help of a number of
our colleagues and friends as well as the cited authors. Simon Vicary of Hull University worked
his way through the whole text, and, although we cannot claim to have followed all his sugges-
tions, a large number of improvements are due to his very considerable effort and insight. Oliver
Morrissey of Nottingham University carefully and usefully commented on chapter 11, while
other colleagues, all at Bath University, read and offered criticisms on chapters as follows: David
Collard (chapters 7 and 16); Chris Heady (chapter 16); Edward Horesh (chapters 1 and 18); John
Hudson (chapter 10); Stephen Jenkins (chapter 9); Alan Lewis (chapter 8); Adrian Winnett (chap-
ters 2 and 3). Chapter 18 draws on our article published in Public Choice (1993) and we would like
to thank the publishers, Kluwer, for permission to use copyright material. The copy editing was
done very skilfully by Sue Hughes. Hilary Strickland did a first rate job on the art work, Lavinia
Porter on production and Kathrine Wallis-King or word processing. Despite all this help, errors
 PREFACE AND ACKNOWLEDGEMENTS TO THE FIRST EDITION ix

of style and content surely remain and (anticipating some American sales) the buck for these
stops with the authors!
While we like to view this book as an integrated whole (hence our reluctance to formally divide
it into parts), there are a number of ways in which it can be used. Chapters 1–6 deal essentially
with expenditure analysis which might form the basis of a course on social policy. Chapters 7–13
deal in part with taxation but also with distribution and stabilization, completing an account of
Musgrave’s (1959, 1989) three branches of the public household. As such, chapters 1–13 can be
used as the basis of a traditional public finance course (although each of the chapters presented
here contains sections offering alternative, especially public choice, perspectives). What might be
termed the third part of the text deals with topics that use the earlier chapters as the essential
building blocks. It includes a treatment of the current and recent major themes in public finance
and could be used in isolation for a course that gives full weight to the public choice perspective.
Students would, however, need to have an understanding of basic public finance/public sector
economics if this option is pursued. The contents of the book follow recent trends in public
sector courses (see Hewett 1987), with expenditure being afforded as much room as finance and
microeconomics being emphasized at the expense of macroeconomics.
As regards the degree of difficulty, the book is designed for those with a good grounding in mi-
croeconomic theory, which suggests that students at or beyond second-year UK university-level
economics should be able to cope with most, if not all, of the text. We have tried to give enough
of the arguments presented to establish for the readers the point at hand in a reasonably ‘tight’ but
often not formally rigorous way. However, as Hewett (1987) points out, technical complexity is
but one aspect of difficulty. Given our focus on analysis, it is hoped that we have avoided difficul-
ties arising from trying to be encyclopaedic. For undergraduates, and indeed for some more so-
phisticated readers, it may be that the ‘open’ nature of the results of the various discussions is a
source of ‘angst’. Those looking for ‘hard’, irrefutable, always-and-everywhere type conclusions
about any aspect of the public sector will not find them here. The absence of such conclusions is,
in good part, our conclusion, and the reasons for this absence are the book’s content.

REFERENCES

Blaug, M. (1970) An Introduction to the Economics of Education. Harmondsworth: Penguin.

Buchanan, J. M. (1989) ‘Richard Musgrave: Public Finance and Public Choice’, Public Choice, 61, 3,
pp. 289–91.
Cullis, J. G. and Jones, P. R. (1987) Microeconomics and the Public Economy: A Defence of Leviathan.
Oxford: Basil Blackwell.
Gravelle, H. (1989) Review of Starrett [1989], The Manchester School, 57, 3, pp. 312–13.
Hewett, R. S. (1987) ‘Public Finance, Public Economics and Public Choice: A Survey of Undergraduate
Textbooks’, Journal of Economic Education, 18, 4, pp. 425–35.
Musgrave, R. A. (1959) The Theory of Public Finance. New York: McGraw-Hill.
Musgrave, R. A. (1989) ‘The Three Branches Revisited’, Atlantic Economic Journal, 17, 1, pp. 1–7.
Musgrave, R. A. and Musgrave, P. B. (1989) Public Finance in Theory and Practice. Fifth edition. New
York: McGraw-Hill.
Starrett, D. A. (1989) Foundations of Public Economics, Cambridge: Cambridge University Press.
This page intentionally left blank
Contents
Detailed Contents xiii
List of Figures xix
List of Tables xxv

1 Market performance: possibilities and prescriptions 1

2 Externalities 37

3 Public goods 63

4 Collective decision-making: searching for the ‘public interest’ 97

5 Rent-seeking, public provision and the ‘return to the market’ 124

6 Evaluation of public expenditure: cost–benefit analysis 162

7 Tax theory: the basic concepts 201

8 Tax evasion and the black economy 236

9 Income (re)distribution 265

10 Central government 304

11 Public choice aspects of macroeconomic policies 340

12 Fiscal federalism 367

13 International issues in public finance 401

14 Public sector failure and public expenditure growth 430

15 Optimal taxation 457

16 Towards a ‘new’ public finance economics: experiments,

behaviour, neuro-imaging and ‘individual failure’ 486

Author Index 514

Subject Index 520
This page intentionally left blank
Detailed Contents
List of Figures xix
List of Tables xxv

1 Market performance: possibilities and prescriptions 1

1.1 Introduction 1
1.2 The concept of ‘Pareto optimality’ 1
1.3 Achieving efficiency: partial equilibrium 2
1.4 Achieving efficiency: general equilibrium 4
1.5 Equity and a social welfare function 8
1.6 ‘Willingness to pay’ and ‘deadweight loss’ 10
1.7 Contestable markets versus perfect competition: how much
competition is necessary? 12
1.8 ‘Pareto improvement’ and ‘potential Pareto improvement’:
can policy outcomes be compared? 13
1.9 ‘Second-best’ theory: are ‘first-best rules’ always required? 15
1.10 Adjusting the focus: introducing new perspectives 17
1.11 Summary 19
Appendix 1(a): Deriving Pareto optimal rules 20
Appendix 1(b): Pareto optimal conditions in competitive markets 22
Appendix 1(c): Consumer surplus: estimating the welfare effects
associated with price changes 24
Appendix 1(d): Second-best theory 30
References 34

2 Externalities 37
2.1 Introduction 37
2.2 Externalities: why are they a problem? 37
2.3 The Coase theorem 39
2.4 Public sector solutions to externality problems 44
2.5 Externalities and equity 47
2.6 Taxes versus regulation: a public choice application 50
2.7 Summary 55
Appendix 2(a): Externalities and Pareto optimality 55
Appendix 2(b): ‘Goods specific externalities’: in-kind versus cash transfer 57
References 60

3 Public goods 63
3.1 Introduction 63
3.2 What are public goods? 64
xiv DETAILED CONTENTS

3.3 The general model for public goods 66

3.4 Pure and impure public goods 68
3.5 Free riding and public good provision 71
3.6 Public provision of pure public goods: the Clarke tax 78
3.7 Merit wants and merit goods 83
3.8 Summary 85
Appendix 3(a): Pareto-optimal provision of a public good 86
Appendix 3(b): Private provision of pure public goods 87
Appendix 3(c): The Lindahl process and the Clarke tax 92
References 94

4 Collective decision-making: searching for the ‘public interest’ 97

4.1 Introduction 97
4.2 Why taxpayers vote 98
4.3 The design of voting rules 102
4.4 Some characteristics of the majority voting rule 105
4.5 Representative democracy: the role of politicians and political
parties 111
4.6 Voting and the Leviathan hypothesis: will majority voting provide
‘excessive’ public expenditure? 113
4.7 Summary 118
Appendix 4(a): The decision to vote 119
References 120

5 Rent-seeking, public provision and the ‘return to the market’ 124

5.1 Introduction 124
5.2 Rent-seeking costs and the political process 125
5.3 Public sector provision 131
5.4 A positive case for public production 133
5.5 A negative case for public production 139
5.6 Prescriptions for and predictions about ‘nationalized industries’ 141
5.7 A return to the market 144
5.8 A new and old role for the state 150
5.9 Summary 157
References 158

6 Evaluation of public expenditure: cost–benefit analysis 162

6.1 Introduction 162
6.2 What is cost–benefit analysis? 163
6.3 Cost–benefit analysis and externalities: real versus pecuniary impact 166
6.4 Cost–benefit analysis and consumer surplus: the evaluation of benefits 168
6.5 Shadow pricing: the deficiencies of market prices 171
 DETAILED CONTENTS xv

6.6 Shadow pricing: creating prices 173

6.7 Discounting and the cost of capital 181
6.8 Risk and uncertainty 188
6.9 Cost–benefit analysis and the potential Pareto improvement criterion 189
6.10 CBA: from a clean Ganges to the 2012 Olympics 193
6.11 Summary 196
References 196

7 Tax theory: the basic concepts 201

7.1 Introduction 201

7.2 The excess burden of taxation: partial equilibrium analysis 201
7.3 The welfare costs of taxation: general equilibrium analysis 209
7.4 The welfare costs of income taxes 212
7.5 Partial equilibrium estimates: further considerations 214
7.6 Marginal cost of public funds and policy decisions 218
7.7 Tax incidence 219
7.8 Tax/subsidy capitalization 231
7.9 Summary 232
References 234

8 Tax evasion and the black economy 236

8.1 Introduction 236

8.2 Evasion activities 237
8.3 Avoidance: loopholes versus policy weapons 238
8.4 Taxation and the informal economy 238
8.5 Evasion as crime 240
8.6 How much to evade and avoid 241
8.7 Criticisms of economic analysis of tax evasion 246
8.8 Appeal to an actor with wider concerns 249
8.9 Appeal to a behavioural actor 250
8.10 Policy to deal with tax evasion 252
8.11 Measuring the black economy 255
8.12 Some reported measures of tax evasion and the shadow economy 256
8.13 Econometric evidence on the determinants of the ‘shadow’ economy 259
8.14 Summary 260
References 261

9 Income (re)distribution 265

9.1 Introduction 265

9.2 Overview of income distribution 266
xvi DETAILED CONTENTS

9.3 Popular measures of inequality and poverty 269

9.4 Redistributive impact of the budget 281
9.5 Fiscal measures and the ‘less well off’ 287
9.6 Criticisms of and limits to redistribution 296
9.7 Summary 299
References 300

10 Central government 304

10.1 Introduction 304
10.2 The basic concepts 304
10.3 Tax theory and tax practice 306
10.4 Tax reform 329
10.5 Summary 336
References 337

11 Public choice aspects of macroeconomic policies 340

11.1 Introduction 340
11.2 Macro theories, policies and political incentives 341
11.3 Political business cycles (new political macroeconomics) 348
11.4 Macroeconomic policies and political incentives in ‘Europe’ 352
11.5 Inflation taxation and ‘Europe’ 354
11.6 Unemployment 355
11.7 UK macroeconomic policy post 1997 359
11.8 Public sector size and economic growth 361
11.9 Summary 363
References 364

12 Fiscal federalism 367

12.1 Introduction 367
12.2 The welfare gains from multiple fiscal units: the decentralization theorem 367
12.3 The optimum size of local authorities: an application of the
theory of clubs 369
12.4 The Tiebout hypothesis: ‘voting with your feet’ 372
12.5 Decentralization and accountability 376
12.6 Decentralization and ‘Leviathan’ 377
12.7 Intergovernmental grants 378
12.8 A ‘public choice’ critique of intergovernmental grants 384
12.9 Summary 394
Appendix 12(a): ‘Optimal’ decentralization and majority voting 395
References 396
 DETAILED CONTENTS xvii

13 International issues in public finance 401

13.1 Introduction 401
13.2 Public goods and free riding: the North Atlantic Treaty Organization 401
13.3 Global public goods 404
13.4 The taxation of international trade: why do countries rely on
trade taxes? 410
13.5 Trade taxes and public choice: pressure-group analysis and
rent-seeking 414
13.6 Maximizing government revenue and smuggling 420
13.7 The harmonization of indirect taxes 421
13.8 Taxation of income from overseas: multinationals 424
13.9 Summary 426
References 426

14 Public sector failure and public expenditure growth 430

14.1 Introduction 430
14.2 Non-market demand conditions 430
14.3 Non-market supply conditions 431
14.4 A typology of non-market failure to match market failure 432
14.5 Bureaucratic economics 432
14.6 Measuring the public sector: a debate within a debate 434
14.7 Wagner’s law 436
14.8 ‘Public choice’ versus public choice and other accounts of
Wagner’s law 437
14.9 Welfare states as sources of difference 449
14.10 Between (social) welfare economics and public choice—political economy 453
14.11 Summary 453
References 454

15 Optimal taxation 457

15.1 Introduction 457
15.2 Optimal commodity taxes 458
15.3 Optimal income tax 462
15.4 A critique of ‘normative optimal taxation’ 469
15.5 ‘Positive’ optimal taxation 471
15.6 ‘Positive’ optimal taxation: empirical evidence 477
15.7 Summary 478
Appendix 15(a): The Ramsey rule: a diagrammatic approach 480
Appendix 15(b): Taxpayer responses and time horizons 482
References 484
xviii DETAILED CONTENTS

16 Towards a ‘new’ public finance economics: experiments,

behaviour, neuro-imaging and ‘individual failure’ 486
16.1 Introduction 486
16.2 From ‘homo economicus’ to ‘homo realitus’ 486
16.3 A behavioural analysis of public policy: loss aversion and
endowment effects 488
16.4 Prospect theory 492
16.5 A ‘richer’ behavioural analysis 494
16.6 The impact of tax policy 496
16.7 Behavioural analysis and the growth of government 501
16.8 Neuroeconomics: emotional and cognitive costs 503
16.9 Happiness: the ‘new’ maximand? 504
16.10 Summary 508
References 509

Author Index 514

Subject Index 520
List of Figures
Figure 1.1 Efficiency in partial equilibrium. 3
Figure 1.2 Efficiency in general equilibrium. 4
Figure 1.3 Utility possibilities. 6
Figure 1.4 Competition and efficiency. 7
Figure 1.5 The importance of the price ratio. 7
Figure 1.6 Social welfare shapes. 9
Figure 1.7 Marginal willingness to pay. 11
Figure 1.8 Inefficiency as ‘deadweight loss’. 12
Figure 1.9 Marginal cost pricing and ‘contestability’. 13
Figure 1.10 Welfare criteria. 14
Figure 1.11 ‘Second-best’ considerations. 16
Figure 1A.1 Marginal rate of transformation. 24
Figure 1A.2 Marshallian consumer surplus. 25
Figure 1A.3 Marshallian and compensated demand. 26
Figure 1A.4 Consumer surplus. 28
Figure 1A.5 The equivalence of the Marshallian and income-compensated
demand curve. 30
Figure 1A.6 The equilateral triangle. 31
Figure 1A.7 Forming the ‘equilibrium’ paths. 32
Figure 1A.8 Illustrating ‘second best’. 32
Figure 1A.9 Social welfare. 33

Figure 2.1 Externalities. 39

Figure 2.2 Externalities the Coase theorem. 41
Figure 2.3 Public sector responses to externalities. 45
Figure 2.4 Quotas to correct externalities. 46
Figure 2.5 Income distribution effects. 48
Figure 2.6 Assigning property rights. 49
Figure 2.7 Taxes versus regulation. 51
Figure 2.8 Public policy and regulation. 51
Figure 2.9 Preference for regulation. 52
Figure 2.10 Taxation or regulation: welfare effects. 53
Figure 2A.1 Cash versus in-kind transfer. 57
Figure 2A.2 Stages toward the triangular Edgeworth–Bowley trading box. 59
Figure 2A.3 In-kind versus cash transfer. 60

Figure 3.1 Aggregate demand: public choice and private goods. 64

Figure 3.2 Public goods in a general equilibrium model. 67
Figure 3.3 Mixed goods: the demand for education. 69
xx LIST OF FIGURES

Figure 3.4 Competition sharing. 70

Figure 3.5 Providing a public good by voluntary co-operation. 72
Figure 3.6 Reaction to contribution by others. 73
Figure 3.7 Cournot–Nash reaction. 73
Figure 3.8 Voluntary provision of a public good. 74
Figure 3.9 Optimum size of clubs. 77
Figure 3.10 The price consumption curve for the private and public good. 79
Figure 3.11 Price consumption curve between tax shares and the public good. 79
Figure 3.12 The Lindahl–Johansen approach. 80
Figure 3.13 The Clarke tax. 82
Figure 3A.1 The Winch/Kolm triangle. 88
Figure 3A.2 Nash equilibrium with a public good. 89
Figure 3A.3 The neutrality theorem. 90
Figure 3A.4 Stackelberg equilibrium with a public good. 90
Figure 3A.5 Subsidizing the public good. 91
Figure 3A.6 Incentives to reveal demand. 93

Figure 4.1 Single-peaked preferences. 105

Figure 4.2 Illustrating single-peaked preferences. 106
Figure 4.3 Multi-peaked preferences. 106
Figure 4.4 Single-peaked preferences and consumer demand. 107
Figure 4.5 Single-peaked preferences and multi-dimensional issues. 108
Figure 4.6 Majority voting and welfare criteria. 108
Figure 4.7 The costs of voting. 109
Figure 4.8 Politicians and the median voter. 112
Figure 4.9 Majority voting and optimal provision of a public good. 113
Figure 4A.1 Why taxpayers vote. 119

Figure 5.1 The social costs of monopoly. 125

Figure 5.1n Rent-seeking and increasing marginal costs. 126
Figure 5.2 Rent-seeking: producers versus consumers. 127
Figure 5.3 Rent-seeking and X-inefficiency. 127
Figure 5.4 DUP activities. 128
Figure 5.5 Stylized regulatory capture. 130
Figure 5.6 Administrative cost and vouchers for education. 135
Figure 5.7 Gaining from compulsory government legislation. 139
Figure 5.8 An illustration of regulation-induced overcapitalization. 140
Figure 5.9 Exploiting a subsidy. 141
Figure 5.10 The ‘decreasing cost’ industry. 142
Figure 5.11 The winner’s curse. 147
Figure 5.12 Waiting list ‘visibility’. 152
Figure 5.13 Waiting lists and costs. 154
 LIST OF FIGURES xxi

Figure 6.1 Rate of return of mutually exclusive project. 164

Figure 6.2 Demand for road travel. 169
Figure 6.3 Accounting for benefits in other markets. 170
Figure 6.4 The value of human life. 175
Figure 6.5 QALY construction. 178
Figure 6.6 QALYs and equity. 180
Figure 6.7 Which discount rate? 182
Figure 6.8 Allowing for uncertainty in project selections: the certainty
equivalent approach. 189
Figure 6.9 The Scitovsky paradox. 190

Figure 7.1 The welfare costs of a selective excise tax. 202

Figure 7.1n Selective secise tax versus lump sum tax. 204
Figure 7.2 Welfare costs and compensated demand. 205
Figure 7.3 Measures of excess burden. 206
Figure 7.4 Deadweight loss of taxation. 207
Figure 7.5 Revenue constant excess burden comparisons. 208
Figure 7.6 The welfare costs of taxation: a general equilibrium analysis. 210
Figure 7.7 Welfare costs of an income tax. 213
Figure 7.8 Efficiency loss with more than one tax. 215
Figure 7.9 Welfare costs of an income tax in a distorted labour market. 216
Figure 7.10 Government expenditure and the welfare costs of taxation. 216
Figure 7.2n Welfare cost and the rate of tax. 218
Figure 7.11 The marginal costs of taxation. 218
Figure 7.12 Legal and economic incidence of taxation. 219
Figure 7.13 Lump-sum taxation and a constant cost competitive industry. 221
Figure 7.14 Lump-sum taxation and monopoly. 222
Figure 7.15 Specific taxation and a constant cost competitive industry. 222
Figure 7.16 Specific taxation and monopoly. 223
Figure 7.17 Betting taxation under competition. 224
Figure 7.18 Betting taxation under monopoly. 224
Figure 7.19 The Harberger model. 228
Figure 7.20 Tax incidence. 229
Figure 7.21 Corporation tax in an open economy. 230
Figure 7.22 Taxation and capitalization. 231

Figure 8.1 Effect of good or service X being untaxed. 238

Figure 8.2 Taxation and informal production. 239
Figure 8.3 Evasion as crime. 241
Figure 8.4 Optimal evasion. 242
Figure 8.5 Factors affecting tax evasion. 244
Figure 8.6 Declaration versus avoidance on legal income. 248
Figure 8.7 Increasing legal income and the effect on declaration and avoidance. 248
xxii LIST OF FIGURES

Figure 9.1(a) Characteristic shape of the personal distribution of incomes. 267

Figure 9.1(b) The income distribution in 2006–07 (UK). 268
Figure 9.2(a) The Lorenz curve. 269
Figure 9.2(b) Gini coefficients (special cases). 269
Figure 9.3 The Gini coefficient, 1979 to 2006–07 (GB). 270
Figure 9.4 Relative poverty: percentage of individuals in households with
incomes below various fractions of median income (AHC). 272
Figure 9.5 Maximizing utility. 274
Figure 9.6 The AI and equality. 276
Figure 9.7 Gaining by giving. 277
Figure 9.8 Interdependent utilities. 278
Figure 9.9 Equity as non-envy. 278
Figure 9.10 Redistribution from malice. 279
Figure 9.11 Assigning incidence. 283
Figure 9.12 Original and final income as a percentage of average income,
by quintile group, UK 2001–02. 286
Figure 9.13 A variety of ‘traps’. 288
Figure 9.14 Tax-transfer schemes. 290
Figure 9.15 Parker’s basic income guarantee. 291
Figure 9.16 Cash transfer versus price subsidies and in-kind transfer. 293
Figure 9.17 Sorting and an in-kind nondurable consumption good. 295
Figure 9.18 Negative income tax and work effort. 297

Figure 10.1 Government receipts as a proportion of GDP, 1900–2005 307

Figure 10.2 Income taxation and budget constraints. 310
Figure 10.3 The incidence of proportional income taxation. 312
Figure 10.4 The changing structure of National Insurance Contributions. 314
Figure 10.5 Revenue maximizing excise taxes? 315
Figure 10.6 UK marginal tax rates, 2005–06. 319
Figure 10.7 Ricardian equivalence. 322
Figure 10.8 Costs of borrowing. 323
Figure 10.9 Ricardian equivalence and imperfect capital markets. 324
Figure 10.10 Financing a deficit. 324
Figure 10.11 Proportions of income taken in personal tax, by decile. 333
Figure 10.12 Frequent tax reform as revenue maximization. 336

Figure 11.1 Derivation of an aggregate supply curve. 344

Figure 11.2 The Laffer-supply-side position. 347
Figure 11.3 Ingredients of the Nordhaus model. 349
Figure 11.4 Equilibrium in the Nordhaus model. 350
Figure 11.5 Importing credibility and political equilibrium. 353
Figure 11.6 Size and welfare cost of an inflation tax. 354
Figure 11.7 Unemployment caused by rent-seeking. 357
 LIST OF FIGURES xxiii

Figure 12.1 The welfare loss of centralization. 368

Figure 12.2 ‘Optimum’ local community. 370
Figure 12.3 Tiebout adjustments. 372
Figure 12.4 Migratory incentives. 375
Figure 12.5 Optimal location. 375
Figure 12.6 Unconditional non-matching grant. 379
Figure 12.7 Conditional non-matching grant. 380
Figure 12.8 Matching open-ended grant. 381
Figure 12.9 Matching closed-ended grant. 382
Figure 12.10 Inefficient location and fiscal residuum. 383
Figure 12.11 Political determination of distributive projects. 385
Figure 12.12 Crowding out national public goods. 387
Figure 12.13 The Niskanen model. 389
Figure 12.14 The Romer–Rosenthal model. 390
Figure 12.15 Fiscal illusion and the ‘flypaper effect’. 391
Figure 12.16 The ‘traditional’ approach with a minimum income constraint. 393
Figure 12A.1 Optimal decentralization. 395

Figure 13.1 Inefficiency in alliances. 402

Figure 13.2 Independent response to a global challenge. 408
Figure 13.3 The welfare effect of a tax on imports. 410
Figure 13.4 An ‘optimum’ import tax. 412
Figure 13.5 A tax on imports and payment to factors of production. 415
Figure 13.6 A tax on imports and the welfare of producers and consumers. 417
Figure 13.7 Industry-based pressure for import taxation. 419
Figure 13.8 The welfare effects of smuggling. 420
Figure 13.9 Taxation of overseas investment. 424

Figure 14.1 The ‘x2’ bureau. 433

Figure 14.2 The ‘optimal’ bureau. 433
Figure 14.3 Bureaucratic power and the consumer surplus of the median voter. 440
Figure 14.4 Fiscal illusion (realities). 440
Figure 14.5 Redistribution and suffrage extension. 441
Figure 14.6 Displacement effect. 443
Figure 14.7 Gains from income ‘smoothing’. 444
Figure 14.8 The ‘eroding’ constitution. 447

Figure 15.1 Optimal commodity taxation: leisure taxable. 458

Figure 15.2 Optimal commodity taxation and labour supply. 460
Figure 15.3 Linear income tax. 463
Figure 15.4 Optimal linear income tax. 464
Figure 15.5 Stern’s ‘trade-offs’. 466
Figure 15.6 Optimal nonlinear income tax. 467
xxiv LIST OF FIGURES

Figure 15.7 Marginal rate of tax from high-income individuals. 468

Figure 15.8 Rent-seeking and optimal taxation. 470
Figure 15.9 Find limits on taxation. 472
Figure 15.10 Proportional taxation and tax revenue maximization. 473
Figure 15.11 Maximizing tax revenue with a regressive tax structure. 473
Figure 15.12 Degressive taxation and revenue maximization. 474
Figure 15.13 RM and tax discrimination. 474
Figure 15.14 The attraction of tax reform. 475
Figure 15.15 Minimizing the political costs of the tax structure. 476
Figure 15.16 The politically optimal commodity tax. 478
Figure 15A.1 Comparing excess burden. 481
Figure 15A.2 Derivation of short- and long-run Laffer curves. 483
Figure 15A.3 Political and taxpayer equilibrium. 483

Figure 16.1 The value function and ‘framing’. 493

Figure 16.2 ‘Crowd out’ and ‘crowd in’. 497
Figure 16.3 Merit wants and motivational equilibria. 500
Another random document with
no related content on Scribd:
The Project Gutenberg eBook of A little
Swiss boy
This ebook is for the use of anyone anywhere in the United States
and most other parts of the world at no cost and with almost no
restrictions whatsoever. You may copy it, give it away or re-use it
under the terms of the Project Gutenberg License included with this
ebook or online at www.gutenberg.org. If you are not located in the
United States, you will have to check the laws of the country where
you are located before using this eBook.

Title: A little Swiss boy

Author: Johanna Spyri

Illustrator: Frances Brundage

Translator: Clement W. Coumbe

Release date: March 31, 2024 [eBook #73300]

Language: English

Original publication: United States: The Saalfield Publishing

Compny, 1926

*** START OF THE PROJECT GUTENBERG EBOOK A LITTLE

SWISS BOY ***
 Transcriber's note: Unusual and inconsistent spelling is
as printed.

THE FOUR OF THEM SOON SAT DOWN TO THEIR LUNCH IN A

PARTICULARLY MERRY MOOD.
 A LITTLE

SWISS BOY

BY

JOHANNA SPYRI

Author of "Heidi," "Uncle Titus in the Country,"

"Cornelli, Her Childhood," "Maxa's Children,"
"Moni, The Goat Boy."

Translated by
CLEMENT W. COUMBE

Illustrated by
FRANCES BRUNDAGE
 THE

SAALFIELD PUBLISHING COMPANY

AKRON, OH NEW YORK

Made in U. S. A.

Copyright, 1926

By

The Saalfield Publishing Company

CONTENTS

Chapter

I. IN LEUK

II. IN THE PASTURE

 III. UNEXPECTED EVENTS

IV. A DEPARTURE AND AN ARRIVAL

V. IN EXILE

VI. STILL HIGHER UP THE MOUNTAIN

VII. STILL MORE MUSIC

VIII. MORE UNEXPECTED EVENTS

IX. SURPRISES, NOT FOR RUSSLI ALONE

X. OLD FRIENDS AND NEW LIFE

XI. ONCE AGAIN THE OLD SONG

FULL PAGE ILLUSTRATIONS

THE FOUR OF THEM SOON SAT DOWN TO THEM LUNCH

IN A PARTICULARLY MERRY MOOD. Frontispiece

"OH, DID YOU FIND MY SCARF AND BRING IT BACK TO

ME?" SHE ASKED.

WHEN VINZI STOPPED, JOS EXCLAIMED, "TEACH ME!"

 A LITTLE

SWISS BOY

CHAPTER I
IN LEUK

THE June sun shone on the green slope above the

village of Leuk and the grass carpeting the heights far
beyond with cool green filled the air with fragrance. In front
of an isolated house on the road to the baths of Leuk two
women engaged in earnest conversation.

"I tell you, Marianne," said the more talkative one, "if
you could furnish a couple of rooms as I did, you would find
it very profitable. You would soon get boarders, for many of
the people coming to the baths do not wish to live there, or
they should not, like the three I have. Of course you live
rather far down and most people prefer the higher localities.
If only you lived over there where those people do! They
have the best location on the slope, and own the best
meadow land too. But I do not like them," glancing at the
house with an unfriendly look. "They are eaten up with
pride. The man is not so bad, but you should see the
woman!"

"How do they show their pride?" asked Marianne.

 "Better ask how they do not show it," quickly replied
Magdalen. "They show it in everything—the way they walk,
the way they stand, and they dress as though every day
were Sunday. The boy's black hair is always curled as
though he were going to a church festival, and the little girl
sticks her nose up in the air as much as to say, 'Here I
come!'"

"The little girl can't help it if her nose turns up, and the
boy isn't really to blame for his curly hair," Marianne replied.
"Doesn't the woman speak pleasantly when you meet her?"

"Oh, yes, she does that, and I wouldn't advise her to

carry her pride that far," said Magdalen in a threatening
tone. "But if you think she stops a moment to speak a few
words, as our other neighbors do, you are mistaken."

Marianne looked at the house and said in quick surprise,

"What has happened? As long as I can remember that
house looked old and gray and all the windows were grimy
with dust. Now it looks like a different house, so snow white
and the windows shine in the sun."

"It is the same house, and the change shows how proud
they are," answered Magdalen warmly. "Farmer Lesa lived
there more than fifty years with his old housekeeper, and in
all those years never drove so much as a nail in the house.
What was good enough for father and grandfather before
him was good enough for him. When his heir came from
over the Gemmi, there started such a tearing down and
rebuilding and such a cleaning up one might suppose a
count was moving in. Of course the wife was the cause of it
all."
 "But I should think it would be necessary to clean up
and renew things if nothing had been done for fifty years,"
said Marianne. "The old house was no pretty sight, I must
say! But why do you say the heir came from across the
Gemmi? Don't the Lesas belong to our section of the
country?"

"Yes, you can find Lesas scattered over the valley,"

answered Magdalen, "but one of them was married the
other side of the Gemmi and remained near Berne or
Freiburg. I know this only from hearsay, for it happened a
hundred or more years ago. When old Lesa died, it was
found his nearest relatives were those living over there. So
Vinzenz Lesa moved here, bringing his wife and two
children; that was a couple of years ago now. It is said they
had a fine house and many cattle on the other side, and a
capital cattle range. I've heard his brother runs that estate."

"Good gracious, I must be off!" exclaimed Marianne,

startled at the striking of the village clock. "What became of
Lesa's housekeeper?"

"She died shortly after he did. She was his cousin and
had lived with him fully fifty years. She was over seventy,
so she could not undertake anything new. Look, look!"
continued Magdalen eagerly. "There they come across the
meadow! Now you can see the Lesa woman and her
dressed-up children too."
 Marianne did not need much persuasion to tarry, for she
was very curious to see the people they had been talking
about. The three came nearer, and the children must have
had a great deal to tell their mother for they were so
engrossed in conversation they had neither eyes nor ears
for anything else.

However, as they approached the house, the mother

pleasantly greeted the two women, the lad pulled off his
cap and the little girl called out in a clear voice, "Good day
to you!" but continued on their way.

"They look nice," remarked Marianne with an approving

glance. "I see no pride whatever, Magdalen, but neatness in
children as well as in mother. Her clothes fit so well I am
wondering how she does it. The boy's cap didn't conceal his
handsome black curls and the little girl with her tiptilted
little nose and brown braids about her head looks as merry
as a little bird."

"Have you anything else to say?" asked Magdalen,

plainly annoyed.

"You are right; I would do better to be on my way than

to be talking so idly," replied Marianne, and moved on.

In the meanwhile Mrs. Lesa with her two children

mounted the hill, the conversation continuing without
interruption.

"Can you believe it, mother?" the lad said. "The child
isn't much taller than Stefeli. When we passed Mrs. Troll's
house last evening, she stood at the front door, and she
went inside and suddenly we heard lovely music through
the open window. Her brother still sat outside reading a
book, so I asked what it was and he said, 'Alida is playing
the piano.' Think of it, such a little girl! I would have liked to
have listened, but Stefeli said we must go on home for it
was getting late."

"And so it was," asserted Stefeli. "I would have been

glad to stay too, but we had to get back home. Even then
father was already at the table when we arrived. I heard
that the boy's name is Hugo, and a crooked lady lives with
them, for I heard Alida say to her brother, 'Now I must go
in; otherwise the Fraulein will fetch me in herself and
everything will be all crooked.'"

"No, no, Stefeli," said her mother. "She meant that

everything might go crooked with her if she did not obey.
Aren't the children's parents with them?"

"I'm not sure. What do you think, Vinzi?" asked Stefeli,

turning toward her brother.

"What are you staring at? And why don't you answer
your sister?" asked his mother.

"Listen, mother, listen!" he said softly. "Don't you hear

that lovely sound?"

His mother paused. The wind wafted the sound of the

evening bell from the valley below and as the echoes died
away over the hills new notes rose louder and clearer. The
mother's eyes rested on him in mingled anxiety and
surprise, as he listened intently in an effort to catch just
one more note.

"Vinzi, will you listen now to what I say?" asked Stefeli,

who showed no surprise at all at her brother's manner.

"Yes," he answered as though waking out of a dream.

 "Is the lady who lives with Alida and Hugo really
crooked?" asked Stefeli, anxious to have that question
settled.

"Yes, perhaps," said her brother a little absent-

mindedly.

But Stefeli could not tolerate such uncertainty and

retorted a little angrily, "If she is not crooked, she is
straight, and there is no perhaps about it. We will go down
to Mrs. Troll's house and see for ourselves what the lady
looks like; can't we, mother?"

"No, we cannot go down to the house on that account,"

replied the mother. "But it is time to turn around or father
will be home before we are, and that must not be."

"Perhaps they will be sitting out in front," said Stefeli,

holding fast to her purpose, and now as her mother turned
back, she ran ahead, to discover as quickly as possible if
anyone was in front of the Troll house.

Vinzi wandered along quietly with his mother. He was

not talkative now as when they had climbed the hill, but his
mother was used to these changes in her boy.

"Tell me, Vinzi," she said, "why did you keep on

listening after the sound of the evening bells had died
away?"

"Oh, I could still hear them," he replied. "And then

suddenly I heard a wonderful song coming down from the
hills. The black firs Joined in with a deep bass and through
it all the bell sang a wonderful song. Oh, if only I could
repeat it!"
 "Wasn't it a song you have heard somewhere?" his
mother asked sympathetically, seeking to understand. "If
you could sing a little of it to me, perhaps I might know
what it was and tell you the words."

"No, no," declared Vinzi. "It is no song I ever heard and

it has no words."

The mother meditated in silence; she could not

understand Vinzi's meaning. She also had always delighted
in music and had taught her children to sing as soon as
they could talk; her greatest joy had been their daily
evening song.

"Come, Vinzi," she now said, "let us sing together. What

shall it be?"

"I do not know. If only I could sing the tune that still
rings in my ears!"

"You only think you hear something. Now sing out

briskly and you will enjoy it," advised his mother and
started a song Vinzi knew well.

He hesitated but the familiar melody soon attracted him

and he joined with his mother in a way she loved. The song
was ended before they reached Mrs. Troll's house, and
Stefeli darted out to them from behind a tree. From this
hiding-place she had been watching the two children who
sat in front of the house, each with a book. Stefeli would
have liked very much to have run up to the little girl and
start a friendship, but the governess came out, and she was
not crooked at all, but so straight and stiff that timid Stefeli
hid more carefully behind the tree. She now told all this and
was very happy to have mother and brother with her as she
passed the house, for the governess was still sitting there.
 The children gave one another searching glances for all
four of them were much interested, and Alida said half
aloud, "They are the children we saw yesterday. I think I
will go and make their acquaintance."

"No, you must not do that, Alida. We do not know who

they are," said the governess quickly.

"She will not let Alida talk with us; did you hear that,
mother?" said Stefeli.

"Yes," replied Mrs. Lesa. "I am glad you did not run in to
see them, and you must not do so, Stefeli, do you hear?"

"Yes, but then we will never meet, and Alida wanted to

so much," said Stefeli rather rebelliously.

"You see, Stefeli, the governess probably has entire

charge of the children and is responsible for everything they
do and for the friends they make," explained her mother.

"There goes father!" exclaimed Vinzi. "If we wish to get

home at the same time he does we must walk faster."

As this was the mother's wish, they hastened their

steps and met him a short distance from their home, and
soon the little family was seated around the supper table.

Everything was quiet during the meal for the children

knew they had to be silent and their parents spoke but
little.

As soon as the children had finished, Vinzi asked, "May

we go out doors?"

And when permission was granted, they hurried off to

the barn where there were plenty of nooks and corners for a
grand game of hide-and-seek.

The June evening was bright and warm, and Vinzenz

Lesa rose cheerfully from the table, went outside and
seated himself on the bench in front of the house to enjoy
his pipe. Soon afterward his wife came out and sat beside
him. Now he grew talkative and told of his visit that day to
an acquaintance down in the valley: how he had looked
over his meadows, fields and cattle and when he had
silently compared them with his own property he had to say
to himself:

"Vinzenz Lesa, that is a fine property you have

inherited."

"Yes, we ought to be thankful, and we will be, Vinzenz,"

said his wife.

"That is quite true," he continued, "but when I rejoice

and plan how to improve the farm and increase the stock, it
seems I am hobbled so I cannot take another step. It is the
boy Vinzi I mean. For whom should I do all this if not for
him? And what kind of a boy is he? He has no eyes in his
head! He shows no pleasure, not a bit of interest in leading
out to pasture the finest cows to be found anywhere
around. If I say to him, 'Just look at the fine fodder in this
meadow!' he says, 'Yes,' and looks absently into the
distance. There is something wrong with him."

"No, no, Vinzenz, that is saying too much," interrupted

his wife eagerly. "If Vinzi does not always listen and
sometimes lets his thoughts wander and does not show any
real pleasure in farming, at least he has done no harm."

"I do not say he has," replied Mr. Lesa. "But what I do

say is that there is something wrong when a boy has no
feeling for such meadows and fields as we own and for such
cows as are in my stalls, and for everything that belongs to
a choice farm. But how to help it I do not know."

"Something may happen to bring about a change. He is

young yet, you know," replied his wife in an effort to soothe
him, although her own anxiety about the lad had been
increased by the afternoon's experience. Thinking it best to
change the subject she told him how, in passing Mrs. Troll's
house that day, she had seen the people who had taken the
upper rooms for the summer; the two children had looked
so nice she would like to have them in her own house.

"A man can never tell what his wife will think of next!"
he exclaimed with rising anger. "But I know what you are
aiming at, and I say, let it alone. I want to live by myself,
and as to these strange gentlefolk, our children are not to
have anything to do with them, or our girl will be as spoilt
as our boy. I am glad to say she is quite different from him.
The young heifer runs after her and eats out of her hand.
When she is told something, she pays attention, but the boy
—he knows nothing."

"To hear you, one might suppose being well brought up

was some sort of a disease, Vinzenz," replied the wife
calmly. "But you have no need to worry. The governess
takes good care her charges do not come near ours. But
now it is time to go indoors," and she called the children to
their evening hymn.

CHAPTER II
IN THE PASTURE
 ONE Monday morning, so early that the sun was just
reddening the tops of the mountains, Stefeli rushed into
Vinzi's room.

"Wake up, Vinzi; wake up quick!" she called to him.

"The man has taken the cows to the pond and father says
as soon as we have had breakfast we must take them to the
pasture so the man can go back to work. We'll take our
lunch with us because it's too far to come home. Won't that
be real fun? Come now, hurry!"

By this time Vinzi was awake, but looked at his sister

with his large dark eyes as though still half dreaming.

"Oh, I dreamed something so beautiful," he said.

"Mother and I were in Sitten. You know I was there last
summer with her. We went into a church and everything
was just as it looked then. An organ was playing music that
was more beautiful than I can tell you."

"Hurry up, Vinzi, and come along! We cannot talk about

organs now," urged Stefeli. "Father is already sitting at the
table and mother has carried in the coffee. You know if
father gets cross because we do not come, it will not be any
fun. Make haste!" and she ran off.

Vinzi knew the truth of Stefeli's words so he sprang out

of bed and dressed hastily. Swallowing his coffee and milk
that stood at his place, he stuck his bread into his pocket
before the other three had half finished their breakfast.

The father watched the boy, thinking, "He can hurry

when going about his business. Perhaps he will turn out all
right."
 The mother had packed the midday lunch for the
children in a little basket and hung it over Vinzi's shoulder.
Stefeli skipped along, a little switch that Vinzi had carefully
cut for her in her hand. She used this to urge the browsing
cows along, but never did she strike them. Once outside,
Vinzi discovered he had left his whip in the barn and had to
fetch it. Every herd-boy had a switch, but only to crack it
now and then so that it echoed in loud booms from the
mountains. Vinzi found no pleasure in his whip, so he was
careless where he put it. Now he searched one corner after
another, and while he hunted his father began to frown.
Then Stefeli darted up with it in her hand, for she
remembered where her brother had put it last.

Now the two set off, and the father called after them,
"Look out, Vinzi, that none of the cows gets across the
stream," and the mother followed with her warning, "Take
care not to go too near the stream where the rapids are!"

"Now we must keep our eyes open so the cows stay in

our own pasture, and we must see that Schwarzeli does not
do too much frisking, for if she does not graze, she will get
thin," said Stefeli.

Vinzi followed Stefeli and looked on as she carefully

placed the little basket in the deepest shade. Then they
both sat on the ground which had been thoroughly dried by
both sun and wind. The fresh morning breeze rustled
through the branches and blew over the meadow far and
wide until its soughing died in the distance. Suddenly Stefeli
jumped up and darted off like an arrow.

"Schwarzeli! Schwarzeli!" the child kept calling as she

pursued the shiny black heifer which was running toward
the stream, tail in the air. "Schwarzeli, wait for me!" but the
high-spirited creature only leaped higher and was now quite