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Democracy and the Theory of Public Finance: A Polycentric, Invisible-Hand Framework

Author: RICHARD E. WAGNER
Published in PFM, Vol. 12 No. 3

Most public finance theorizing treats its material of public finance as reflecting some ruler’s optimizing choices. Within democratic regimes this ruler is typically a median vote. While this approach has tractability on its side, it achieves that tractability by presenting caricatures of democratic fiscal processes by reducing democratic complexity to monocentric simplicity. In contrast, this paper explores a polycentric or invisible hand framework for fiscal theorizing, which recognizes that no single mind is even capable of apprehending in detail the substantive reality of modern fiscal processes. What results is recognition that fiscal processes resemble market processes in that they operate through knowledge that is distributed among participants and where fiscal outcomes are products of spontaneous ordering that emerges through competitive interaction among political enterprises within a quasi-market process of open competition.

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