Public provision of private goods such as education is usually viewed as a form of redistribution in kind. However, does it arise when income redistribution is feasible as well? In this paper I analyse a two-dimensional model of political decision making. Society has to choose both the tax rate and the allocation of the revenues between income redistribution and public provision of education. The political process that I analyse involves endogenous parties. Parties have a unique role in the model; I assume that parties increase the commitment ability of politicians and, as a result, increase the ability of different groups in society to compromise with one another. I find that public provision of education arises as an anti-majoritarian outcome; public provision of education arises only when those who benefit from education, e.g., voters with children, are a minority. The reason is that when education is consumed only by a minority, such redistribution in kind is 'cheap' relative to universal income redistribution, i.e., it can be effectively provided even with low taxes. Public provision of education arises then as a political compromise offered by the party of the poor who benefit from education and the rich voters who prefer low taxes. Thus...

This paper examines New Labour's social security and related policies since 1997 in the light of evidence on public attitudes. The list of measures where policies have been in or have come into line with public attitudes is much longer than the list of measures where policies have been out of line with public attitudes or appear to have led them. One interpretation is that policy has been led by opinion surveys and focus groups, with opportunities lost to take more radical action and then persuade people of the need and justification for it. An alternative would be that policy has navigated with the grain of some of the more progressive parts of public opinion to achieve a result that has carried the public with it, in a way that would not have been sustainable if there had simply been an increase in the generosity of an unreformed social security system.

Unrealistic optimism is a well documented phenomenon. This paper argues that it is important in many economic contexts. Focusing on start-up finance for businesses, optimism may be responsible for or consistent with features such as credit rationing or redlining that are normally taken as symptoms of under-provision of finance requiring intervention to expand lending. Optimism leads to the opposite conclusion, at least if it is legitimate to use fiscal policy to counteract systematic error. The paper reports on an experiment in which, due to optimism, the lower the prizes to entrepreneurial activity the higher the subject's expected income.

London is the key engine of UK economic growth, whose taxes finance public services in many other regions. But historically its special needs have not attracted the investment and public support they need, and the new austerity climate could spell disaster for the capital’s capacity to grow effectively. Tony Travers explains why the capital needs the same kind of public finance devolution that Scotland, Wales and Northern Ireland already enjoy.

No matter who forms the new government in May 2010, the new set of ministers will have to tackle the worst deficit in UK public finance for decades. The 2010 to 2015 period will inevitably require policy-makers and citizens to make some hard choices – either raising taxes or pruning spending on previously highly valued public services. In the second of our ‘Hard Choices’ series, and ahead of the last budget before the election, Joachim Wehner looks at how best to make cuts and potentially maintain economic growth.

No matter who forms the new government in May 2010, the new set of ministers will have to tackle the worst deficit in UK public finance for decades. The 2010 to 2015 period will inevitably require policy-makers and citizens to make some hard choices – either raising taxes or pruning spending on previously highly valued public services. In the third of our ‘Hard Choices’ series, Nicholas Barr looks at the arguments against free higher education.

Haroon Chowdry, Lorraine Dearden, and Wenchao (Michelle) Jin analyse the financial implications of the reforms to higher education finance for students, graduates, taxpayers and universities. The reforms will save taxpayers money and the poorest 29 per cent of graduates will actually be better off under the new system, but the average graduate will be worse off.

Productivity is defined as the ratio of outputs to inputs. When applied to the public sector, productivity becomes a key performance indicator that shows how efficiently public resources are employed in providing public services. Until not too long ago productivity in the public sector was assumed to be flat as outputs were given the same price as the cost of producing them. Recent methodological approaches suggest to measure outputs directly in order to count with realistic productivity estimates. Empirical public sector productivity studies are still in its infancy. This paper proposes to contribute to this new field by analysing productivity changes in the area of tax collection. This is a key area in which, as of 2008, the central government spent over £3.3bn in administrative resources and which provided more than £450bn in revenue, involving the processing of more than 24 million different tax forms. We contend that key changes in public management approaches in the UK during the last twenty years may be related to the observed changes in tax collection productivity. Specifically, we posit that the transition from the so called New Public Management (NPM) approach to Digital Era Governance (DEG) one, which focuses on the re-centralisation of government agencies and the reliance on Information and Communication Technologies (ICT) to simplify administrative processes...

This paper discusses how to construct student loans to ensure that, for the most part, they count as private spending. Though the specifics relate to the finance of higher education, the issue has much wider ramifications for flexible combinations of public and private activity, for example in financing public transport, paying for infrastructure, and the like. The opening section explains the issue, section 2 justifies the specific loan proposal and section 3 discusses ways of ensuring that the scheme is classified as private.

George Osborne has recently outlined new thinking on private financing for major public service projects. Widely criticised as saddling public bodies with long-term debts, the Private Finance Initiative funding model has been used extensively since the 1990s. Mark Hellowell examines whether the Chancellor’s speech outlines a strategic shift or is more semantic.

This paper reviews recent revisionist studies of imperialism that demonstrate the complexities behind the late Qing state's strategy to accommodate to new challenges born out of foreign conflicts exacerbated by domestic crises. These publications have pointed scholars away from the exclusivity of external agency to the making of modern China. But looking at the role of globalization adds another dimension to understanding how imperialism engaged late Qing China's public finance system and indigenous banking institutions. China's centuries-old experience with global trade previous to the nineteenth century did not prepare the country for world-wide recession, and consequently, foreign banks acquiring a hold on the government's purse by the last decades of that century. From a 'broad-brush' perspective, the paper argues state-sponsored attempts at reform of public finance came too late, and in the long-term had grave repercussions.

Against the backdrop of the review of the EU budget currently in progress, this paper revisits the academic literature on multi-level public finance and analyses to what extent theory can inform the discussion on budget reform. The answer may seem dis-heartening, in so far as the exploration reveals that theory does not provide a conclusive roadmap for reform. However, the paper argues that Europe is facing hard political choices that must be based on a serious discussion of what we want the EU to be and to do.

We live in an urban age. Over half the world’s population now lives in urban areas, while the urban population is expected to reach 60% by 2030. At the same time, the importance of cities for national economic growth and climate change continues to increase. Three groups of cities will be particularly important for the global economy and climate: Emerging Cities, Global Megacities and Mature Cities. When combined, these 468 cities are projected to contribute over 60% of global GDP growth and over half of global energy-related emissions growth between 2012 and 2030 under business as usual. However, not all countries and cities will benefit from the potential economic gains of urban growth under business as usual. The winners and losers of urban expansion will depend on the policy decisions that national and sub-national governments make over the next few years. Evidence suggests that urban growth that is poorly managed by governments can lead to a range of economic, social and environmental costs, such as traffic congestion, inefficient public transport, air pollution with associated health impacts, and inadequate infrastructure for basic services such as energy, water and waste.

A new series of Election Analyses is now available from the LSE’s Centre for Economic Performance (CEP). The series will discuss the research evidence on some of the key policy battlegrounds of the 2010 General Election, including macroeconomic policy, immigration, health, education, crime, poverty and inequality, labour market policy, regional policy, energy and the environment, financial regulation and bankers’ bonuses, and foreign aid. The latest economic growth figures confirm that the UK economy is slowly recovering from the deep recession of 2008/09. But according to researchers, Tom Cunningham and Ethan Ilzetzki, at the CEP, the recovery will probably continue to be slow, and there is still no sign of a significant reversal in the current account deficits that the UK has run for the past two decades. These problems are likely to be compounded by large fiscal deficits and the medium-term challenge of public debt reduction.

This article explores the principles that should guide efforts to raise finance for climate action in developing countries. The main conclusions are that, first, there is an important role for private finance, which would be facilitated by having pervasive and broadly uniform emissions pricing around the world. Second, public finance is warranted by a range of market – and policy – failures associated with climate change and its mitigation. Third, raising tax revenues may be preferable to borrowing as a means of raising public finance, although the economics is not clear-cut. Public finance theory advocates taxing ‘bads,’ of which a number have escaped the tax base so far. But it discourages hypothecation of specific revenue streams to particular uses. Fourth, how much could or should be raised by the many specific proposals for finance for climate action in developing countries is often uncertain. So is how multiple schemes would interact. Several schemes could depress carbon prices. Earmarking is often assumed to be justified despite the arguments to the contrary. Fifth, two sets of proposals do particularly well judged against this analysis: (i) expanding the scale and scope of the CDM (ii) expanding the use of international financial institutions’ balance sheets.

We utilise a large database on public investment at the prefecture (NUTS-3) level in Greece for the period 1976-2008 to examine the spatial and functional allocation of public investment in the country. We investigate the extent to which expenditures in different types of public investment are complementary across space and over time and examine their redistributive character. We also analyse regional specialisations and the geographical concentration of public investments and complementarily use an exploratory spatial data analysis to examine the extent of clustering of public investment and identify possible patterns in the geography of clusters and hotspots. Although our analysis uses predominantly descriptive tools, our results have confirmatory power, as they reveal a surprisingly random pattern for the spatial and functional allocation of public investment in Greece, thus raising important questions about the rationale for these allocations and, by implication, about the geographical, political and economic dynamics that underlie them. These questions obtain an additional salience in light of the administrative and fiscal reforms pursued currently by the Greek government under the pressure of the country’s sovereign debt crisis.

This paper analyzes the role of public and private responsibility in the provision of public goods. We emphasize that a typical public good will require many different inputs which raises the possibility of partnerships to exploit comparative advantages of different parties. But hold-up problems due to contractual incompleteness in specifying tasks discourage separation of ownership and management. We extend our analysis to examine the role of project design or “ideology” as a separate non-contractible input, and the possibility of crowding out in the form of a less caring government being elected because of the presence of private providers. The main application developed here is to NGOs in developing countries which, in the last two decades, have been increasingly involved in various capacities in the provision of a wide range of public goods and services.

The granting of discretionary budgeting powers to policymakers whose utility functions do not match those of the societies they govern, may lead to sub-optimal fiscal outcomes which require the creation of binding and credible commitments to rectify. Past research into the institutional constraints placed upon, and behaviour of, policymakers has shown that these do, in fact, generate real effects on macroeconomic performance. Optimal fiscal systems, in this sense, become reliant on having in place an institutional framework which structurally induces social welfare maximizing outcomes. This thesis provides both a historical overview of the birth of modern public finance as well as an in depth examination of both theoretical and empirical contributions to tax theory with a full statistical analysis of the multidimensional determinants of compositional systems of budget equations from the revenue side, observed across 90 states between 1990-2008. There is also the somewhat neglected area of finite planning horizons in public finance, where policymaker discount factors may lead to sub-optimal dynamic fiscal outcomes; mainly, the accumulation of public debt. Theoretical expectations have been difficult to statistically validate due to unobservable transition likelihoods and endogeneity problems which are overcome in this paper revealing significant discount effects on the accumulation of debt. Lastly...