Fiscal Sociology and the Theory of Public Finance: An Exploratory Essay

By Slusher, Thomas | Public Finance and Management, April 1, 2012 | Go to article overview
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Fiscal Sociology and the Theory of Public Finance: An Exploratory Essay


Slusher, Thomas, Public Finance and Management


FISCAL SOCIOLOGY AND THE THEORY OF PUBLIC FINANCE: AN EXPLORATORY ESSAY Richard E. Wagner, Cheltenham, UK: Edward Elgar, 2007

ABSTRACT

Public finance theory has historically treated government as an omniscient actor working outside of the market. The state is assumed to be able to identify problems and take the necessary action to fix them. In this book, Wagner redefines the foundational assumptions of public finance. Instead of an omniscient actor, state, like markets, is an emergent order where people interact. While this book leaves certain applications underdeveloped, it addresses important implications of a social-theoretic approach to public finance. This book provides a strong critique to welfare economics, and lays the groundwork for future scholars to redefine how we think about public finance.

BOOK REVIEW

Economic theories of the public sector typically branch into two catego-ries: public finance and public choice. Public finance theories take a normative approach, treating the state as an omniscient actor working to correct market failures. In contrast to this system's design approach, public choice generally takes a positive approach to explain the current state of affairs. Public choice theories tend to treat the government as an organization of individuals acting in their own self-interest.

Richard Wagner, however, takes a social-theoretic approach to public fi-nance in his book Fiscal Sociology and the Theory of Public Finance: An Ex-ploratory Essay. In it, he treats the state not as an actor or organization inter-vening in an existing market order, but as an emergent order within which societal interaction occurs. Wagner defines an interconnected relationship be-tween state and market, which each emerge from aspects of human nature. Building offthe work of dozens of scholars, he presents a new way to think about the public sector and strengthens the existing public finance literature.

In his first chapter, Wagner lays the groundwork for a social-theoretic ap-proach to the role of the state in public finance. In particular, he examines the two contrasting theoretical foundations in public finance. The first is the ap-proach inspired by Francis Edgeworth, which treats the state, as Wagner says, "as an autonomous and choosing agent" (6). Wagner notes that this approach is essentially one of comparative statics, analyzing the different end states which could occur as a result of the choices made by the state. The other ap-proach, inspired by the work of Knut Wicksell, treats the state as a process of interaction, with fiscal phenomena emerging from that interaction. Wagner uses an entrepreneurial logic to show that, in the Wicksellian approach, fiscal phenomena emerging in the public sector can be characterized by logic similar to that used to describe phenomena emerging in the private sector.

Next, Wagner elaborates on this theory through a discussion of private property and taxation. In particular, he explains the significance of the emer-gent nature of state activities, using refuse collection as an example. He de-scribes a system in which refuse collection is organized privately, but occa-sionally a driver would drop his load before reaching the dump. This eventual-ly leads to towns taking on the responsibility for refuse disposal. As Wagner points out, it is easy to see how this could occur in many different ways. As people living in a town get upset about a particular problem they perceive, they could seek a solution through interactions in the public square. He con-cludes that, "the origin of state is located in human nature," while also noting that a state could take any number of forms. In essence, state is representative of the "commons" that is life in society.

Wagner elaborates on this concept in the next two chapters and returns to the example of entrepreneurial activity. He states that entrepreneurial activity is pursued either in the public square or the market square, but that entrepre-neurship in the public square is not significantly different from that of the market square.

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