This article discusses: the doctrinal content of the group of ideas known as ‘new public management’(NPM); the intellectual provenance of those ideas; explanations for their apparent persuasiveness in the 1980 s; and criticisms which have been made of the new doctrines. Particular attention is paid to the claim that NPM offers an all-purpose key to better provision of public services. This article argues that NFM has been most commonly criticized in terms of a claimed contradiction between ‘equity’ and ‘efficiency’ values, but that any critique which is to survive NPM's claim to ‘infinite reprogrammability’ must be couched in terms of possible conflicts between administrative values. The conclusion is that the ESRC'S Management in Government’ research initiative has been more valuable in helping to identify rather than to definitively answer, the key conceptual questions raised by NPM.

A public management for all seasons

This paper uses an intertemporal general equilibrium asset pricing model to study the term structure of interest rates. In this model, anticipations, risk aversion, investment alternatives, and preferences about the timing of consumption all play a role in determining bond prices. Many of the factors traditionally mentioned as influencing the term structure are thus included in a way which is fully consistent with maximizing behavior and rational expectations. The model leads to specific formulas for bond prices which are well suited for empirical testing. 1. INTRODUCTION THE TERM STRUCTURE of interest rates measures the relationship among the yields on default-free securities that differ only in their term to maturity. The determinants of this relationship have long been a topic of concern for economists. By offering a complete schedule of interest rates across time, the term structure embodies the market's anticipations of future events. An explanation of the term structure gives us a way to extract this information and to predict how changes in the underlying variables will affect the yield curve. In a world of certainty, equilibrium forward rates must coincide with future spot rates, but when uncertainty about future rates is introduced the analysis becomes much more complex. By and large, previous theories of the term structure have taken the certainty model as their starting point and have proceeded by examining stochastic generalizations of the certainty equilibrium relationships. The literature in the area is voluminous, and a comprehensive survey would warrant a paper in itself. It is common, however, to identify much of the previous work in the area as belonging to one of four strands of thought. First, there are various versions of the expectations hypothesis. These place predominant emphasis on the expected values of future spot rates or holdingperiod returns. In its simplest form, the expectations hypothesis postulates that bonds are priced so that the implied forward rates are equal to the expected spot rates. Generally, this approach is characterized by the following propositions: (a) the return on holding a long-term bond to maturity is equal to the expected return on repeated investment in a series of the short-term bonds, or (b) the expected rate of return over the next holding period is the same for bonds of all maturities. The liquidity preference hypothesis, advanced by Hicks [16], concurs with the importance of expected future spot rates, but places more weight on the effects of the risk preferences of market participants. It asserts that risk aversion will cause forward rates to be systematically greater than expected spot rates, usually

https://pages.stern.nyu.edu/~dbackus/BCZ/discrete_time/CIR_Econometrica_85.pdf

A Theory of the Term Structure of Interest Rates.

In a general equilibrium model of a labor economy, the size of government, measured by the share of income redistributed, is determined by majority rule. Voters rationally anticipate the disincentive effects of taxation on the labor-leisure choices of their fellow citizens and take the effect into account when voting. The share of earned income redistributed depends on the voting rule and on the distribution of productivity in the economy. Under majority rule, the equilibrium tax share balances the budget and pays for the voters' choices. The principal reasons for increased size of government implied by the model are extensions of the franchise that change the position of the decisive voter in the income distribution and changes in relative productivity. An increase in mean income relative to the income of the decisive voter increases the size of government.

A Rational Theory of the Size of Government

A crude distinction between economics and politics would be that economics is concerned with expanding the pie while politics is about distributing it. In this paper we analyze the relationship between the two. We focus on how an economy's initial configuration of resources shapes the political struggle for income and wealth distribution, and how that, in turn, affects long-run growth. Our main conclusion is that inequality is conducive to the adoption of growth-retarding policies. We derive this result from a simple political-economy model of growth, and present cross-country evidence consistent with it. The key feature of our model is that individuals differ in their relative factor endowments. We distinguish between two types of factors: an accumulated factor (called "capital") and a nonaccumulated factor (called "labor"). Growth is driven by the expansion of the capital stock, which is in turn determined by individual saving decisions. Long-run growth is endogenous, as the aggregate production function is taken to be linearly homogeneous in capital and (productive) government services taken together. The provision of government services is financed by a tax on capital. Because government services are productive, a "small" tax on

/pdf/distributive-politics-and-economic-growth-qvz2u81rr4.pdf

Distributive Politics and Economic Growth

Is inequality harmful for growth? We suggest that it is. In a society where distributional conflict is important, political decisions produce economic policies that tax investment and growth promoting activities in order to redistribute income. The paper formulates a theoretical model that captures this idea. The model implications are supported by the evidence. Both historical panel data and post-war cross sectionc indicate a significant and large negative relation between inequality and growth. This relation is only present in democracies.

Is inequality harmful for growth

Optimal consumption, portfolio and life insurance rules for an uncertain lived individual in a continuous time model

In many countries, the political party holding power changes more frequently than the trend growth rates in government spending and taxes. Shifts of political power are often preceded by rhetoric about ‘meeting needs’ or cutting taxes, which post-election performances rarely match. Yet, changes in the size of government, up and down, occur. On average, the size of government, measured by the share of taxes or spending to output, has increased in many countries during the past century, but changes in size occur at diffrent rates and, at times, the relative size of government declines. In recent work (Meltzer and Richard, 1981), we develop a general equilibrium model in which people choose consumption and leisure and, as voters, decide on income redistribution or the (average) tax rate. The model implies that the size of government changes with the ratio of mean income to the income of the decisive voter and with the voting rule or qualifications for voting. Extensions of the franchise that increase the number of voters who benefit from income redistribution increase votes for redistribution. The size of government increases. Changes in the age composition of the population that increase the proportion of the population receiving old age assistance also increase redistribution paid from taxes on labor income. The relation is symmetric. Changes in productivity, or in labor force participation, that lower mean income relative to the income of the decisive voter, reduce the size of government. The tests of the model reported here treat the person with median income as the decisive voter. We find that the ratio of government spending for redistribution to aggregate income, and the share of aggregate income redistributed in cash, rise and fall with the ratio of mean to median income and the level of (median) income. Redistribution in kind — the provision of education, health care, fire protection, and other services — also rises and falls with the ratio of mean to median income, but it appears to be independent of the level of income. Our model implies, and the data suggest, that Wagner's law — relating the size of government to the level of income — must be amended. The relation is not simple and direct, as many tests of Wagner's law presuppose, but depends, in our model, on shape of the income distribution — more specifically on the ratio of mean to median income. Failure to hold the distribution of income constant renders many previous tests meaningless. Further, our results suggest that voters' choice of the nature of redistribution — in cash or in kind — affects the results. Although we do not derive the relation between size of government and voters' choice of cash or in-kind benefits (and we neglect public goods), our results suggest that Wagner's law is more likely to find support if redistribution is in cash. Our hypothesis is parsimonious. There is no uncertainty. Taxes are linear, and all redistribution is by lump sum transfer. The decisive voter is fully cognizant of the costs and benefits of the redistribution he demands, including the effects on incentives to work and consume. We neglect most features of the political process, including any influence of interest groups, bureaucrats, and other monopoly elements that affect ‘supply.’ We recognize that a useful extension of our model would incorporate the allocation of funds to specific programs and thereby incorporate ‘supply’ factors. In our empirical work, we rely on a linear approximation to a non-linear equation and obtain our estimates from an equilibrium relation, not a structural equation. Despite the model's parsimony, the neglect of supply factors, the use of a linear approximation, and data interpolation, the hypothesis explains much of the trend in the relative size of spending for redistribution and a considerable part of the annual variation observed in the United States during a recent forty-year period. During the period we studied, our measure of government spending for redistribution increased, in nominal value, from $10 billion to more than $350 billion and the share of total income redistributed rose from 12% to 22%. A considerable part of the observed increase in the size of government appears to be consistent with rational choice by maximizing voters who benefit from redistribution and are able to shift a disproportionate share of the cost to people with incomes above the mean.

Scott F. Richard

Papers

A Rational Theory of the Size of Government

Optimal consumption, portfolio and life insurance rules for an uncertain lived individual in a continuous time model

Tests of a rational theory of the size of government

A continuous time equilibrium model of forward prices and futures prices in a multigood economy

An arbitrage model of the term structure of interest rates