The Peacock-Wiseman Hypothesis

MA (Economics)

I Semester

Submitted To:

Dr. Gyan Prakash

Submitted On:

October 21, 2013

By:

Sujay S.

Phatak

Gopal Patidar

Ajay Sahu

Sunita Gehlot

History

The Growth of Public

Expenditure in the United

Kingdom (1961)

ALAN T. PEACOCK,

University of Edinburgh

JACK WISEMAN,London School of

Economicsand Political Science

[A study of behavior ofBritish government

expenditures from 1890 to 1955]

The Essence

The government spending tends to evolve in a step like pattern, coinciding with social upheavals, notably wars.

1 2 3 4 5 6 7 8 9 100

1

2

3

4

5

6

Expenditure Growth

Period

Go

ve

rnm

en

t S

pe

nd

ing

The analysis of Peacock and Wiseman involves three related elements, namely –

I. Displacement Effect

II.Inspection Effect

III.Concentration Effect

Along with these effects, a concept of ‘Tolerance Level of Taxation’ is also explained by the duo.

Displacement EffectPublic

Expenditure in

times of peace

1 2 3 40

0.5

1

1.5

2

2.5

Government Expenditure

Public Expenditure in times of

Social Disturbance

s

1 2 3 40

1

2

3

4

5

GE (In times of Peace)

GE (Current)

To meet the increased

expenditure due to social

disturbances, the government

tends to increase the level of taxes (immediate

effect).This increases

the overall budget to a new

level.

Inspection Effect

1 2 3 40

0.5

1

1.5

2

2.5

3

3.5

4

4.5

Growth in Government expenditure

GE (In times of Peace) GE (Current)

With the expenditure

increased, the government along with

public review the revenue

position and the need to find a solution of the

important problems that have come up and agree to the required

adjustments to finance the increased

expenditure.

Tolerance Level of Taxation

The amount of tax that a

population is

willing to tolerate and put up with.

The public attains a

new level of tax

tolerance when the inspection effect is

created (as the

expenditure grows up).

1 2 3 4 5 6 7 80

0.5

1

1.5

2

2.5

3

3.5

Tax Tolerance

Tax Tolerance Level

Concentration Effect

Due to displacement

effect, the public expenditure goes up, and

simultaneously the inspection effect rises the level of revenue

(by way of taxes).

The levels of public

expenditure and revenue are thus

stabilized to a new level till

another disturbance

occurs to cause a displacement

effect.

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