Understanding Social Spending: Theories and Political Influence
Weaknesses:
It is difficult to measure the influence of lobbyists on public sector action.
Summary of Expansion Theories from an Application Perspective
Greater complexity of societies, the power of union resources or interest groups, and Marxist ideology itself contribute to the expansion of social spending.
Explanatory Theories from a Social Welfare Perspective
Theories refer to structural characteristics, behavior of politicians and bureaucrats, and the existence of fiscal illusion. These theories are based on arguments such as:
- Productivity growth in the private sector is less.
- Politicians and bureaucrats have autonomy to pursue their own interests regardless of the voters. They offer policies to specific groups and diffuse costs in order to stay in power.
The Role of Politicians
The desire to minimize costs in collective decision-making involves delegating responsibilities to politicians because they are professionalized and supposedly represent the interests of most voters.
Economically, political behavior is explained as a case of oligopoly in which a few (politicians) face many (voters).
Politicians seek the benefit of the community, but their primary task is to guarantee their stay in power. In the electoral process, they look at three variables: unemployment, inflation, and economic growth to achieve electoral support. Hence, they design their programs according to these premises.
Being better informed than the voters, politicians are likely to generate some political illusion among voters so that they more clearly perceive the benefits of social policies and obscure the costs inherent in them.
Politicians seek to maximize their own benefit, i.e., the number of votes, in order to stay in power. Their action is oriented toward practical policy whose costs are diffuse (distributed among the whole community) and whose benefits are concentrated (e.g., youth in the case of public housing, the elderly in the case of pensions).
In election periods, politicians implement expansionary policies to reduce unemployment and increase the growth rate, although this may raise inflation. The reason is that voters value changes in unemployment or economic growth more than prices. Once the elections are won, they must address the cost of this expansive policy by controlling inflation.
Solutions proposed to combat the damaging effects of political action to make the electoral cycle are diverse. Some suggest the degree of state intervention in the economy should be minimal. Others believe that information should be provided to voters to make them more aware of the consequences of electoral cycles. Still others opt for a longer duration of legislatures to calm elections, or advocate for clearer distinctions between areas of management and politics.
The Role of Bureaucracy
Bureaucracy aims to maximize its budget due to its monopoly power in the supply of public services. In social spending, inside information allows them to exert great influence on politicians, leading them to demand a large amount of resources for this purpose with little concern for improving efficiency.
The Organizational Structure of the Public Sector
The increase in social spending from this perspective has a double meaning: firstly, the more decentralized it is, the greater the spending. Secondly, the so-called fiscal illusion causes that when public expenditure is financed mainly through indirect taxes, the taxpayer’s perception of the real cost of public services is less, leading to greater social spending because costs are underestimated and benefits are overestimated. Conversely, if the same amount of spending is financed through direct taxes, it can give rise to tax objection movements.