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User charges and bureaucratic inefficiency

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  • Edward Bierhanzl
  • Paul Downing

Abstract

This paper develops the theoretical reasons why user charge finance leads to improved government efficiency and reduced expenditures. It is argued that user charges constrain bureaucratic behavior, thus forcing the bureau to operate closer to the true demand curve for the service. Further, it is argued that user charges reduce consumer demand by connecting use and payment and by breaking fiscal illusion. This analysis leads one to expect that greater reliance on user charge finance would lead to lower government expenditures. An empirical test is performed which supports this hypothesis. The theoretical results combined with this empirical test suggest that user charges do generate lower government expenditures and a more efficient government. Copyright International Atlantic Economic Society 1998

Suggested Citation

  • Edward Bierhanzl & Paul Downing, 1998. "User charges and bureaucratic inefficiency," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 26(2), pages 175-189, June.
    • Handle: RePEc:kap:atlecj:v:26:y:1998:i:2:p:175-189
    DOI: 10.1007/BF02299360
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    References listed on IDEAS

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    1. Borcherding, Thomas E & Deacon, Robert T, 1972. "The Demand for the Services of Non-Federal Governments," American Economic Review, American Economic Association, vol. 62(5), pages 891-901, December.
    2. Paul B. Downing, 1992. "The Revenue Potential of User Charges in Municipal Finance," Public Finance Review, , vol. 20(4), pages 512-527, October.
    3. Tideman, T Nicolaus & Tullock, Gordon, 1976. "A New and Superior Process for Making Social Choices," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1145-1159, December.
    4. Romer, Thomas & Rosenthal, Howard, 1982. "Median Voters or Budget Maximizers: Evidence from School Expenditure Referenda," Economic Inquiry, Western Economic Association International, vol. 20(4), pages 556-578, October.
    5. Niskanen, William A, 1975. "Bureaucrats and Politicians," Journal of Law and Economics, University of Chicago Press, vol. 18(3), pages 617-643, December.
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    Cited by:

    1. Karlaftis, Matthew G. & Tsamboulas, Dimitrios, 2012. "Efficiency measurement in public transport: Are findings specification sensitive?," Transportation Research Part A: Policy and Practice, Elsevier, vol. 46(2), pages 392-402.
    2. repec:esr:chaptr:jacb200506 is not listed on IDEAS
    3. Morgenroth, Edgar, 2005. "Waste Collection, Double Taxation and Local Finance," Papers BP2006/4, Economic and Social Research Institute (ESRI).

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