Saturday, November 27, 2010

Rent seeking and crowding out are real phenomena

Drawing from a study (Henderson, D. George Mason) reported in the Economist I note that…..

Examining 232 appointments of Chairs to Congressional Committees, the average state received a 30% – 40% boost in earmarks in the year following the appointment. Private firms reacted by reducing R&D spend by some 7% – 12% and capex by some  8% – 15%.

A long run study  (Furceri – OECD and Sousa Univ Minho) finds that over the long run a 1% rise in government consumption reduces private sector consumption by 1.9%.

The real action around all the complaints about “troughing” then turn out to be serious concerns – not about fairness (a pointless concept) but efficiency and therefore social well-being.

Canada’s Budget Triumph”, by David R Henderson, Mercatus Center, George Mason University
Do Powerful Politicians Cause Corporate Downsizing?” by Lauren Cohen, Joshua Coval and Christopher Malloy, Harvard Business School
The Impact of Government Spending on the Private Sector: Crowding-out versus Crowding-in Effects”, by Davide Furceri and Ricardo Sousa

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