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Comment on Katz, Mahler, & Franz (Vol. 77, December 1983, pp. 871-886)
... Our conclusion does not depend on the assumption of a linear production function. Auerbach (1983) and Przeworski and Wallerstein (1985) present models of investment-neutral taxes on profits using the standard production function with diminishing returns to investment. Nor is our conclusion restricted to the case of logarithmic utility functions. ...
Michael Wallerstein was a leader in developing a rigorous comparative political economy approach to understanding substantive issues of inequality, redistribution, and wage-determination. His early death from cancer left both a hole in the profession and a legacy that will surely provide the foundation for research on these topics. This volume collects his most important and influential contributions, organized by topic, with each topic preceded by an editorial introduction that provides overview and context.
A research question of perennial interest is, @'What are the exogenous variables which best account for the differential distribution of income across nations?@' Better understanding of the causes of inequalities in income distribution has been sought by investigating the effects of tax policies on income allocation and growth in capitalist countries. The quantitative analyses of these matters have engendered some debate about the adequacy of data, and the sufficiency of measurement. A preliminary foray into this research vineyard by Claudio Katz, Vincent Mahler, and Michael Franz is criticized here by Ronald King and Steven Jackson. In turn, Katz, Mahler, and Franz respond.
A central claim of both Marxist and neoclassical political theory is that under capitalism all governments must respect and protect the essential claims of those who own the productive wealth of society. This is the theory of “structural dependence of the state on capital.” Using a formal model, the internal logic and the robustness of the theory is examined. We conclude that in a static sense the theory is false: virtually any distribution of consumption between wage earners and owners of capital is compatible with continual private investment once an appropriate set of taxes and transfers is in place. Yet the state may be structurally dependent in a dynamic sense. Policies that, once in place, redistribute income without reducing investment do reduce investment during the period in which they are anticipated but not yet implemented.
This paper investigates the relationship between Democratic presidential incumbency and economic growth in the United States in the long run. The analysis shows the Democrats have stimulated growth beyond trends when two conditions are met: first, when an incoming administration is formally committed to promoting growth and employment, and second, when that administration has at least two terms of office to implement those goals. The transmission mechanisms linking incumbency and growth are explored by means of a standard Keynesian IS-LM model, which is augmented by additional relevant variables. The transmissions process works via monetary policy, fiscal policy, and welfare expenditure. It also seems likely that changing expectations of consumers and investors stimulated the economy beyond trends for some Democratic administrations.
Has the scope of public planning in contemporary capitalist economies promoted or hindered economic growth and income distribution? We explore this question by assessing the impact of various mechanisms for raising government revenues on investment, growth, and income distribution in 22 developed market economy countries. The article considers whether growth and distribution are affected differently by governments' relative reliance on personal and corporate income taxes, social security contributions, property taxes, and sales and value added taxes, or by the relative progressivity of tax mechanisms. Our findings lend support to the assertion that fiscal instruments (especially personal income taxes) can be used successfully to achieve greater income equality. On the other hand, these findings run counter to the conventional notion that an automatic trade-off exists between an active public sector and a dynamic, expanding economy: although there is surely some tension between the economic goals of growth and equality, it is not at all clear that they are necessarily incompatible or that government can contribute only to the latter.
In spite of the traditional legitimacy accorded the market mechanism of the private sector in advanced capitalist nations, governments in those nations have become more influential as providers of social services and income supplements, producers of goods, managers of the economy, and investors of capital. And in order to finance these various activities the revenues of public authorities have increased dramatically–to a point where they are now equivalent to one-third to one-half of a nation's economic product.
This growth in governmental activity in advanced capitalist society is examined by considering the causes, and some of the consequences, of the expansion of the public economy–defined, following Schumpeter's discussion of the “tax state,” in terms of the extractive role of government. The primary concern of this article is to discover why some nations have experienced a far greater rate of increase in recent years and, as a result, have a much larger public economy than other nations. Five types of explanation are elaborated to account for the growth of the scope of governmental activity: (1) the level and rate of growth in the economic product; (2) the degree to which the fiscal structure of a nation relies on indirect, or “invisible,” taxes; (3) politics–in particular the partisan composition of government and the frequency of electoral competition; (4) the institutional structure of government; and (5) the degree of exposure of the economy to the international marketplace. The article evaluates the five explanations with data for 18 nations, and concludes by discussing some implications of the analysis.
The cost of capital plays an important role in the allocation of resources among competing uses in a decentralized market system. The purpose of this paper is to organize and present what is known and what is hypothesized about the effects of taxation on the incentive to invest, via the cost of capital,taking full account of important issues that arise independently from the question of taxation. Included in the analysis is a discussion of empirical findings about the interaction of inflation and taxation in influencing the incentive to invest, and a treatment of taxation and uncertainty.
