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75-27,314
PEPPARD, Donald Moore, Jr., 1944*
PUBLIC EXPENDITURE INCIDENCE IN MICHIGAN,
1970: AN ORTHODOX AND A RADICAL APPROACH.
Michigan State University, Ph.D., 1975
Economics, finance

Xerox University Microfilms,

Ann Arbor, Michigan 48106

PUBLIC EXPENDITURE INCIDENCE IN MICHIGAN,

1970:

AN ORTHODOX AND A RADICAL APPROACH
By
Donald Moore Peppard, J r .

A DISSERTATION
Submitted to
Mi chigan S t a t e U n i v e r s i t y
in p a r t i a l f u l f i l l m e n t o f the requi rements
f o r the degree o f
DOCTOR OF PHILOSOPHY
Department o f Economics
1975

ABSTRACT
PUBLIC EXPENDITURE INCIDENCE IN MICHIGAN, 1970:
AN ORTHODOX AND A RADICAL APPROACH
By
Donald Moore Peppard, J r .

This d i s s e r t a t i o n has been designed to y i e l d

esti­

mates of the i nci dence of p u b l i c expendi t ures in Mi chigan
by usi ng two di f f e r e n t a n a l y t i c a 1 models.

One model , the

c o n v e n t i o n a 1 or orthodox a p p r o a c h u s e s

t echni ques s i m i l a r
i
to those used in o t he r expendi t u r e i nci dence s t u d i e s .

The second model , a r a d i c a l a n a l y s i s ,

is based on a neo-

M a r x i s t theory o f the r o l e of the S t a t e i n a capi t a 1i s t
socioeconomic
analyses

system.

The purpose of under t aki ng two

in the study i s to compare the i nci dence res u l t s

o f the two mode 1s to determi ne the e f f e c t o f changi ng the
basi c assumptions of the r o l e o f the S t a t e .
Conventional

expendi t u r e i nci dence s tudi es

usua1l y

use the c o s t s - i n c u r r e d - o n - b e h a l f - o f concept of expendi t u r e
a 11 oca t i on .

The c o s t s - i ncurred concept ass umes tha t the

government undertakes expendi t u r e programs to b enef i t ei t h e r
speci f i c g roups in s o c i e t y or to benefi t soci ety i n genera 1.
The b e n e f i ts of government expendi t u r e prog rams a r e al s o
ass umed to be equal to the cos ts o f the programs.
exampl e, expendi tures

For

f o r educat i on are ass umed to b e n e f i t

the f a m i 1i es o f students enrol l ed in school and a l s o to
provi de benef i ts to soci ety in genera 1.

E d u c a t i o n a 1 b e n e f i ts

Dona 1d Moore P e p p a r d ,
are va1ued a t the cost o f government spending f o r
t i on a l

Jr.

educa­

purposes.
In t h i s

convent i onal

are ass umed to be the r e s u l t s
process.

analysis,

government p o l i cies

of a p i u r a 1i s t i c democrati c

T h e r e f o r e , government programs which b e n e f i t

s p e c i f i c groups of p e o p l e , such as t r a n s f e r payment s, and
programs whi ch benefi t s o c i e t y as a w h o l e are assumed to
be cons i s t e n t w i t h

the des i res of the m a j o r i t y

of the mem­

bers i n the s o c i e t y .
The radi c a 1 view of the S t a t e ,
rejects

the p 1u r a 1i s t i c

on the o t h e r hand,

assumption and sees the S t a t e as

di r e c t i y or i ndi r e c t l y co n t r o l 1ed by a s i n g l e cl ass
society,

the capi t a l i s t s .

Because i t

is

domi nated by only

one cl ass among many, the S t a t e must a c t i n
tha t c l a s s ,

in

the i n t e r e s ts of

but al so di sgui se i ts cl ass b i a s .

These o f t e n

cont radi ct o r y requi rements r e s u l t in the accumul at i on and
1egi t i mi z a t i o n f unct i ons of the S t a t e .
The r a d i c a l

assumption about the S t a t e leads to

di f f e r e n t ass umpti ons about the di s t r i b u t i on o f the benef i ts
of expendi t u r e programs under the c o s t s - i ncurred c o n c e p t .
For examp 1e , i n addi t i on to the benef i ts o f educa t i ona1
expendi t ures which accrue to f a m i 1i es of st udents

(called

s p e c i f i c goods benef i t s ) and the benef i ts to s o c i e t y as a
whole ( c a l l e d general

goods benefi t s ) ,

benefi ts which accrue to capi t a 1is t s .
from ed u ca t i o na l

the re ar e c l as s goods
Class goods benef i ts

programs a r i se because the educat iona 1

system provi des capi t a 1is ts w i t h a t r a i ned wo rk f o r c e which
is i n c u l c a t e d wi t h the values of the capi t a 1i s t sy st e m.

Do n a l d Moore P e p p a r d , J r .
The amount of cl ass goods b e n e f i t s i s determi ned by
the di f f e r e n c e between the a c t u a l
program and the s o c i a l l y

cost of the expendi t u r e

necessary costs o f t he program.

S o c i a l l y necessary costs are those costs which are necessary
to

mai n t ai n the pr oduct i ve capaci t y and l ab o r f o r c e

economi c system
efficiency.

of the

in a given s t a t e of p r o du c t i vi ty or

These costs are i ndependent o f the nat ur e of

the economi c sys tern, so the di f f e rence between s o c i a l l y
necessa ry cos ts and t o t a l

costs i s ass umed to be the res u l t

of the capi t a 1i s t soci oeconomi c system.
In bo th

o f the mode 1s used, benef i ts are a 11 oca ted

to r e c i pi en ts who are i denti f i ed as members of i ncome
cl asses .

The t o t a 1 amount of b e n e f i t s

i ncome c l a s s ,
bracket,

accr ui ng to any

as a percentage o f the t o t a 1 i ncome in t h a t

is a measure o f the i n c i dence of the p u b l i c s e c t o r

in Mi chi gan.

The c o n v e n t i on a 1 a n a l y s i s yi elds

i nc i d e nc e

es t i ma tes which are consi s t e n t l y more r e g r e s s i ve ( p r o - p o o r )
than the res u l t s o f the r a d i c a l

a nalys i s .

under one ass umpti on, the d i s t r i b u t i o n
income is 8 . 3 percent more e q u a l ,
cients,

For examp 1e ,

of pos t- pu bl i c sector

in terms o f Gini

coeffi­

than the d i s t r i b u t i o n o f p r e - p u b l i c s e c t o r i ncome.

On the ot her hand, the radi c a 1 a n a l y s i s y i e l d s

a post-publi c

sect or i ncome di s t r i buti on which i s onl y 3. 2 pe r c e n t more
equa1 than the p r e - p u b l i c s e c t o r d i s t r i b u t i o n o f i ncome.
Thus , the di f f e r e n t ass umpti ons about the r o l e of the Sta te
lead to s i g n i f i c a n t l y di f f e r e n t p u b l i c s e c t o r i nci dence
es t i mat es.

The r a d i c a l

ass umpti ons l ead to the concl usi on

Dona 1d Moore P e p p a r d , J r .
t h a t p u b l i c s e c t o r spending does much l ess to r e d i s t r i b u t e
income from r i c h

to poor than previ ous s t udi es have f o u n d .

But expendi t u r e i nci dence i s onl y one si de o f the
fiseal

coin,

and t h i s study has been designed to be

compa t i b1e wi t h a Mi chigan tax i nci dence s tudy al so done
f o r f i sea I 1970.

2

By combi ni ng the res u l t s o f t h i s d i s ­

sertation wi t h those of R o b e r t s ' ,

es t i mates of the t o t a 1

impact of the p u b l i c s e c t o r in Michigan in 1970 can be
generat ed.

Some examples of the net f i seal

i nci dence of

the Michigan p u b l i c s e c t o r are cont ai ned i n an addendum
to t h i s d i s s e r t a t i o n .
See, f o r examp 1e , the f o 11owing s t u d i e s :
0. H.
Brownlee, Es t i mat ed Di s t r i but i on of Mi nnesota Taxes and
Publ i c Expendi t u r e B e n e f i t s ( M i n n e a p o l i s :
U n i v e r s i t y of
Minnesota P r e s s , 1960) ; Ann Eapen and A. Thomas Eapen,
" I nci dence o f Taxes and Expendi t ures of Connecti cut S t a t e
and Local Governments, F i s c a l Year 1967" (a s tudy prepared
f o r the Connect i cut S t a t e Revenue Task F o r c e , 1 9 7 0 ) ; and
Charies Ross, "The E f f e c t s of S t a t e and Loca1 Government
Expendi tures on the D i s t r i b u t i o n of Income i n Ok 1ahoma ,"
( unpubl ished Ph.D. d i s s e r t a t i o n , Oklahoma S t a t e Un i v e r s i t y ,
1972) .
2
Douglas R o b e r t s , " I n c i d e n c e of S t a t e and Loca 1
Taxes: A Case Study f o r Mi chi gan, 1970" ( unpubl i shed
Ph.D. di s s e r t a t i on, Michigan S t a t e Uni v e r s i t y , 1 975) .

ACKNOWLEDGMENTS

11 is probabl y a r a r e d i s s e r t a t i o n t h a t i s com­
p l et ed wi t h o u t the help of many people whose c o n t r i b u t i o n s
have been i n v a l u a b l e .

This d i s s e r t a t i o n

is not r a r e in

t h a t sense because I am i ndebted to a number of peopl e
whose help and advice have shaped the form and c o n t e n t
of t h i s study and ensured i ts c o m p l e t i o n .
My p r i n c i p a 1 debt i s to Mi 1 ton T a y l o r who has
conti n u a l l y shown an i n t e r e s t i n my work, s upported my
e f f o r t s and gui ded my t hi nki ng.
Mitch Stengel

I am a l s o g r a t e f u l

to

f o r convi nci ng me to r e o r i e n t t h i s s tudy

and f o r his h e l p f u l

suggesti ons to t h a t end.

and Mitch have been i n s t r u m e n t a l
broaden my outl ook on the f i e l d
by Dan Saks and Leanna S t i e f e l

Both M i l t

in prompting me to
o f economi cs.

The comments

have al s o hel ped to improve

the s t u d y .
I al so want to thank Douglas Roberts f o r the
1i beral

assi stance he has gi ven w i t h t he use o f hi s d a t a ;

t here i s no quest i on t h a t his help enabled me to complete
the di s s e r t a t i o n i n advance o f my o r i g i nal e x p e c t a t i o n s .
Finally,

I am i ndebted to Duane Gibson, Di r e c t o r o f t he

I n s t i t u t e f o r Communi ty Development and S e r v i ces , f o r the
■MBA*

o p p o r t un i t y to be employed d ur i ng the p e r i o d t h i s

study

was researched and w r i t t e n .
A s p e c i al

note o f thanks i s due to my f a m i l y f o r

t h e i r moral support and conf i dence i n my a b i 1i t y .
wife,

L i n d a , has been a c o n t i n u a l

and has borne w e l l

source o f encouragement

the burden o f our support dur i ng the

years o f my graduate s t u d y .
butions i t

My

is doubt ful

Wi t hout these s p e c i a l

contri-

t h a t I would have completed an

o f t e n demanding course o f s t u d y .

TABLE OF CONTENTS

Page
ACKNOWLEDGMENTS ...........................................................................................

ii

LIST OF T A B L E S ...........................................................................................

vii

LIST OF F I G U R E S .................................................................................................. i x
Chapter
I.

RATIONALE AND SCOPE OF THE S T U D Y ......................................1
The Purpose o f the S t u d y ....................................................1
Procedures Used in the S t u d y .................................... 6
The Scope o f the S t u d y ................................................ 10

II.

THE CONVENTIONAL A N A L Y S I S ........................................................ 13
The General
Distributing
The Problem
The Problem
The I d e n t i t y
Summary and

III.

E q u i l i b r i u m Problem
. . . .
16
General Goods Expendi tures .
. 20
of B e n e f i t s in Kind
. . . .
24
of L i f e t i m e Income .............................
25
o f B e n e f i t s and Costs
. . .
28
Methodology
..........................................
31

THE RADICAL CRITIQUE AND A PROPOSED
RADICAL A N A L Y S I S .............................................................. ....

. 34

The Role of the S t a t e ....................................................... 36
The F i s c a l C r i s i s o f the S t a t e .................................. 45
The Nature o f B e n e f i t s and B e n e f i t
Recipients . . . . .
49
I d e n t i f y i n g B e n e f i t s and B e n e f i t
R e c i p i e n t s ............................................................................ 56
A Met hodol ogi cal Summary ..........................................
61

C ha p t e r
IV.

Page
THE DISTRIBUTION OF INCOME AND TRANSFERS:
........................................................
CONVENTIONAL ANALYSIS
The D i s t r i b u t i o n of T r a n s f e r Payments
Under Conventi onal Assumpti ons
. .

V.
VI .

.

.

71

THE DISTRIBUTION OF INCOME AND TRANSFERS:
A RADICAL ANALYSIS
...............................................................
EDUCATION:

A CONVENTIONAL ANALYSIS

.

.

63

.

86
.103

Conventi onal Assumpti ons About Educati on
. 103
............................ 106
The Benefi ts o f Educati on
The Problem of Va l u i ng Benefi ts
. . . .
108
I d e n t i f yi n g Benefi t R e c i p i e n t s - ............................ 110
Pre vi ous Studi es
Cri t i cisms of Previ ous Studi e s ............................ 112
The Conventi onal A l l o c a t i o n of Benefi ts
....................................... 120
in This Study
S umma ry
...................................
. 126
V II.

A RADICAL ANALYSIS OF EDUCATIONAL EXPENDITURES .

135

The Radi cal Cri t i q u e
.......................................... 1 36
Benefi ts and Benefi t Reci pi ents
. . . .
142
A11ocat i on of Benefi t s .......................................... 146
Summary
................................... 147
V III.

THE DISTRIBUTION OF HIGHWAY EXPENDITURES :
CONVENTIONAL A N A L Y S I S ............................ ......
.

.

. 151

The Benefi ts of Highway Expendi t ures .
.
. 151
I d e n t i f y i ng Benefi t Reci pi e n t s ............................ 153
The A l l o c a t i o n o f Benefi ts i n t h i s S tudy
. 161
I X.

HIGHWAY EXPENDITURES:

A RADICAL ANALYSIS

.

. 167

The Nature o f Benefi ts from Highway
Spendi n g ...................................................................... 1 68
I d e n t i f y i ngBenefi t Reci pi e n t s ............................... 1 71
175
S u m m a r y .......................................................
A CONVENTIONAL ANALYSIS OF HEALTH AND
HOSPITAL EXPENDITURES
........................................................

180

The Nature o f Hea1th Ser vi ces and Thei r
Benefi ts
.
181
The A1 l o c a t i on of Benefi ts in Previ ous
S t u d i e s .................................................................................185
The A 1 l o c a t i o n of Benefi ts in Thi s Study
. 187
.

X.

v

Chapter
XI.

Page
A RADICAL ANALYSIS OF HEALTH AND HOSPITAL
EXPENDITURES
.............................................................................

193

The P o l i t i c a l Economy o f H e a l t h Care .
.
. 194
I d e n t i f y i ng the Benefi ts and B e n e f i c i a r i e s
of Spending f o r He al t h and Hospi t a l s
.
. 197
The A11oca t i on of Benef i t s ...............................204
X II.

A CONVENTIONAL ANALYSIS OF GENERAL
E XPENDI TURES.........................................

208

The Benefi ts of General Goods Expendi t u r e s
. 208
The A l l oca t i on of Benefi ts i n Previ o us
Studi es
....................................... 210
The A l l o c a t i o n of Benefi ts i n . t h i s Study
. 212
X III.

GENERAL EXPENDITURES:

A RADICAL ANALYSIS

.

. 217

The Benefi ts and Benefi t Reci pi ents o f
Genera 1 S p e n d i n g ....................................................218
The A11 oca t i on of Benefi t s ............................... 221
XIV.

A SUMMARY OF THE RESULTS AND A CONCLUSION

.

. 225

Di scussi on of the Resul t s ............................... 225
Concl usi o n ..................................................................238
XV.

AN ADDENDUM........................................................................................248

BIBLIOGRAPHY

.................................................................................................

255

L I S T OF TABLES

Page
Di s t r i b u t i on of Money Income f o r Mi c h i g a n ,
1970 ...........................................................................................

64

Source of Income by Income Class f o r F a mi l i es
and U n r e l a t e d I n d i vi dua1s (Mean Income
Values in D o l 1a r s )
. . . . . . . .

68

D e t e r mi na t i o n of the Broad Defi ni t i on of
Income i n Mi c h i g a n , 1970 (Mi 11 ions o f
D o l 1ars )
........................................................

69

Net Expendi t ures o f Michigan S t a t e and Local
Governments Fi seal 1970
...................................

72

Di s t r i b u t i o n o f T r a n s f e r Payments- - Convent i onal
Assumpti o n s ...............................................................

79

Di s t r i but i on o f Adj us ted Broad Income-Conventi onal A s s u m p t i o n s ...................................

84

T r a n s f e r Payments as Percentages o f Adj usted
Broad I ncome- - Convent i onal Assumpti ons

85

The Di s t r i b u t i on of Capi t a l i s t

89

Income

D i s t r i b u t i o n o f T r a n s f e r Payments- - Radi cal
Ass umpti o n s ...............................................................

97

Di s t r i b u t i on of Adj usted Broad I ncome —
Radi cal Ass u m p t i o n s .................................................

100

T r a n s f e r Payments as Percentages o f Adj usted
Broad I ncome--Radi cal Assumptions

101

The D i s t r i b u t i o n o f Local Education Expendi t u r e s - - C o n v e n t i o n a l A n a l y s i s ............................

129

The D i s t r i b u t i o n o f Hi gher Education Expendit u r es — Conventi onal A n a l y s i s ................................... 132

Page
The D i s t r i b u t i o n o f Expendi t ures f o r
Educati o n - - R a d i c a l A n a l y s i s ...................................

149

The Di s t r i but i on of Benefi ts of Highway
Expendi t u r e s ......................................................................

179

The D i s t r i b u t i o n o f Benefi ts from Hea1th and
Hospi t a l Expendi t u r e s - - C o n v e n t i onal Anal y si s .

191

The D i s t r i b u t i o n of B e n e f i t s from H e a l t h and
Hospi t a l Expendi t u r e s - - R a d i c a l A n a l y s i s

206

The Di s t r i b u t i on o f Benefi ts from General
Expendi t u r e s - - C o n v e n t i o n a l An a l y s i s .

216

The Di s t r i but i on of Benefi ts from General
Expendi t u r e s - - R a d i ca1 A n a l y s i s ............................

224

The Di s t r i but i on and I n c i dence of Expendi t ures
Under Conventi onal Assumpti o n s ............................

226

The Di s t r i but i on and I nc i de nc e of Expendi t ur es
Under Radi cal Assumpti o n s ..........................................

230

Cumulati ve Shares o f Income f o r Vari ous Income
Distributions
.
...............................................................

233

Percentage Seri es Used to Di s t r i bute
Expendi t u r e s ......................................................................

245

Net F i s c a l I n c i dence in Mi chi gan, 1970, as
Percentages o f Adj usted Broad Income

249

L I S T OF FIGURES

Figure
1.

Page
Illustration

of Lorenz Curves

.................................... 237

CHAPTER I
RATIONALE AND SCOPE OF THE STUDY

The Purpose o f the Study
This study i s an a t t e mp t to measure t he d i s t r i b u ­
tional

e f f e c t s of s t a t e and l o c a l

in Mi chi gan in f i s c a l

1970.

government expendi t ur es

R e d i s t r i b u t i on of income is

only one p o s s i bl e impact t h a t a p u b l i c s e c t o r can have on
an economy; Richard Musgrave has developed a m u l t i p i e budget
theory o f the p u b l i c s e c t o r which i ncl udes the a l l o c a t i o n
and s t a b i 1 i z a t i on f u n c t i o n s , as w e l l
function. ^

as the d i s t r i b u t i v e

Analyses o f the e f f e c t s of government budgets

t y p i c a l l y se p a r a t e these t h r e e f u n c t i o n a l

r o l e s to i s o l a t e

t h e i r i m p a c t s , even though, i n p r a c t i c e , governments do not
budget s e p a r a t e l y f o r the vari ous f u n c t i o n s t hey p e r f o r m .
It

is i mp or t an t to r e c o g ni z e t h a t in c a r r y i n g out

the a l 1o c a t i o n and s t a b i 1i z a t i on f u n c t i o n s , governments al s o
have d i s t r i b u t i o n a l

effects.

As Weisbrod n o t e s , "The

Ri chard A. Musgrave, The Theory of Pu bl i c Fi nance
(New York:
M c G r a w - H i l l , 1 9 5 9 ) , Chapter 1.

1

2
incom e -redistribu tion al
pervade most, i f
a c t i v i t y ."

e f f e c t s o f governmental

not a l l ,

But,

actions

aspects o f governmental economic

the r e d i s t r i b u t i o n a l

e f f e c t s , as opposed

to the a l l o c a t i v e and s t a b i l i z a t i o n e f f e c t s , have r e c e i ved
re la tive ly

little

a t t e n t i o n from economi st s.

si ve c o s t - b e n e f i t 1i t e r a t u r e i s
have d e a I t ,

an example o f s t u d i e s w h i c h

f o r the most p a r t , w i t h analyses of the a l l o c a ­

tion function*

Until

re c e n tly, studies

t a x a t i o n domi nat ed t he l i t e r a t u r e
tion*

The e x t e n -

of the e f f e c t s

o f the d i s t r i b u t i o n

An al yse s o f t he d i s t r i b u t i o n a l

of
func­

incidence o f pu b lic

sect or expendi t ures ar e r e l a t i v e l y r e c e n t evi dence t h a t t h e
distribu tive
and b e n e f i t s ,

effects,

as w e l l

as t he l e v e l

o f the costs

deser ve i n c r e a s e d a t t e n t i o n *

The need f o r s t u d i e s o f t h i s
whi c h con cer n f o r

t he d i s t r i b u t i o n a l

budget s i s par amount ,

type,

i.e .,

studies

impact o f p u b l i c

is a r t i c u l a t e d well

in

sector

by John Weeks;

The o v e r r i di ng r e a l i t y o f t he American economy is
i nequali t y . . . i n e q u a l i t y of i ncome, i neq ua l i ty
of power, i n e q u a l i t y wi t h regard to the i n a b i 1i t y
to determi ne o ne ' s l i f e .
I n e q u a l i t y i s what
economics should be a l l a b o u t . B u t , i n f a c t ,
economics as i t i s taught and p r a c t i c e d by econo­
mi sts d e a l s very l i t t l e w i t h i n e q u a l i t y . 3
Burton A. Wei sbrod, "Col 1e c t i ve Ac t i on and the D i s ­
t r i b u t i o n of Income: A Conceptua1 Approach ," i n Pub! i c
E x p e n d i t u r e and P o l i c y A n a l y s i s „ e d . by Ro b e r t Haveman and
" Jul i us Mar gol i s (Chicago:
Markham, 1 9 7 0 ) , p. 137.
3

John Weeks , "Pol i t i c a 1 Economy and the Po l i t i cs o f
, E c o n o m i s t s ," Revi ew o f Radi c a 1 Pol i t i cal Economi c s , V o l . 1
(May, 1969) , p T T

3

This s t udy,

t h e r e f o r e , i s p a r t of a r e c e n t t r end i n

the study of p u b l i c

f i n a n c e t owar d an a n a l y s i s o f the r e l a ­

tively

negl ect ed e q u i t y aspects o f the e x p e n d i t u r e si de o f

p u b l i c b ud ge t s.

Negl ect of the d i s t r i b u t i o n a l

p ub l i c e x p e n d i t u r e s , however,
for this study.

is

impact o f

only p a r t o f the reason

A more i m p o r t a n t reason f o r t h i s study i s

the exi s tence of pervas i ve i nequali t i e s
so c i a l m o b i l i t y and p o l i t i c a l
e x i s t i n M i c h i g a n as w e l l

power.

in

i ncome, w e a l t h ,

These i n e q u a l i t i e s

as i n t he U . S . , b u t t he da t a w h i c h

e x i s t f o r Michigan s u b s t a n t i a t e on ly the i n e q u a l i t y
d i s t r i b u t i o n o f income.
of wealth

is

4

The i n e q u a l i t y

in

in

t he

the d i s t r i b u t i o n

u n d o u b t e d l y g r e a t e r t han t h a t o f i n c ome ,

5

but

t h i s d i s s e r t a t i o n dea 1 s only w i t h the impact o f the p u b l i c
sec t o r on the d i s t r i b u t i o n o f i ncome.
The persi stence of i n e q u a l i t i e s
of income i mp1i es t h a t governmental

i n the di s t r i b u t i o n

p o l i c i es to a l t e r

the

di s t r i b u t i on ar e e i t h e r i n e f f e c t i v e , non-exi s t e n t or t h a t
t hi ngs woul d be even worse i n the absence o f t h e s e po1i c i e s .
One means by which t he s e i n e q u a l i t i e s

can be reduced i s

e x p e n d i t u r e programs designed to b e n e f i t the r e l a t i v e l y
d i s a d v a n t a g e d groups i n our soci e t y .
of t h i s study i s

T h e r e f o r e ? one purpose

to examine the d i s t r i b u t i o n a l

spending by s t a t e and l o c a l

impact of

governments i n M i c h i g a n to

4

See the i ncome di s t r i buti on da ta in Chapter IV f o r
more p a r t i c u l a r s .
5

L e s t e r Thurow, The Impact of Taxes on the American
Economy ( Newpor t : Praeger, 19 71 ) , p. 11.

4

determine whether these ex p e n di t ur e s tend to moderate or
exacerbate income i n e q u a l i t i e s
Analysis of p u b lic
many f o r ms.

i n the s t a t e .

s e c t o r e x p e n d i t u r e s has t ak e n

Some s t u d i e s , as mentioned above, i s o l a t e

s p e c i f i c programs to d e t e r m i n e t h e i r

costs and b e n e f i t s

and occ as i ona1l y the i n c i d e n c e o f the costs and b e n e f i t s ;
a n o t h e r s t u d y examined t he i n c i d e n c e o f e x p e n d i t u r e s w i t h i n
a m etropolitan area;

7

many s t u d i e s

have measured t he

i n c i d e n c e on income o f t h e combined e x p e n d i t u r e s o f t he
f e d e r a l , s t a t e and l o c a l

g o v e r n m e n t s ; and f i n a l l y . ,

a few

s t u d i e s have a n a l y z e d t h e i n c i d e n c e o f s t a t e and l o c a l
government e x p e n d i t u r e s w i t h i n

a single state.

8

This s tud y

6

See t he e x t e n s i v e c o s t - b e n e f i t l i t e r a t u r e as an
example o f t he f i r s t c a s e ; i n t he second c a s e 9 see W. Lee
Hansen and B u r t o n Weisbrod , "The D i s t r i b u t i o n o f Cost and
Direct B e n e f i t s o f P u b li c Higher E ducation:
The Case o f
Ca 1 i f o r n i a , 11 J o u r n a l o f Human Resources , V o l . 24 ( Dec e mb e r s ,
1971).
7

W i l l i a m B. Neenan, "Suburban-Central Ci ty E x p l o i t a ­
t i on T h e s i s :
One C i t y ' s Ta1e ," i n Tr a n s f e r s i n an Urbanized
Economy, e d . by Kenneth Bouldi ng, M a r t i n P f a f f and Ani t a
P f a f f (Belmont:
Wadsworth, 1 9 7 3 ) , pp. 1 0 - 3 9 .
8

The f o l l o w i n g st udi es i nciude the pr i nci pal e x pendi ­
t ure i n c i d e n c e st u d i e s which examine f e d e r a l and s t a t e and
1oca 1 expendi t ures i n t h e U . S . :
John A d l e r , "The Fi s ca l
System, the D i s t r i b u t i o n of Income and P u b l i c Wei f a r e ," i n
Fi scal Pol i ci es i n the Ameri can Economy, ed. by Kenyon Poole
(New York:
Preh'tice-Ha 1 V, 1 9 5 9 ) , ppT 5 5 9 - 4 0 9 ; Robert A l l i s o n ,
"The E f f e c t o f Taxes and T r a n s f e r Payments on the Di s t r i b u ­
t i on of Income" ( unpublished Ph.D. d i s s e r t a t i o n , U n i v e r s i t y
of Col or ado, 1 9 6 5 ) ; Ti bor Barna , R e d i s t r i b u t i o n of Incomes
Through Pu bl i c Finance i n 1937 ( O x f o r d :
Cl ar e ndo n P r e s s ,
19457; 0. H. B r o w n l e e , Es t i m a t e d Di s t r i b u t i on o f Mi n ne s ot a
Taxes and P u b l i c E x p e n d i t u r e B e n e f i t s H n^ThTTeapoTTs:
Uni ver-*
si ty of Mi nnesota P r e s s , 19601; A l f r e d Conrad , " R e d i s t r i b u t i o n
Through Government Budgets i n the Uni ted S t a t e s , 1950, " in
Income Redi s t r i b u t i on and Socia 1 P o l i c y , e d . by Alan T.
Peacock (London:
Johnathan Cape, 1 9 5 4 ) , pp. 1 78 - 267; Ann

5

takes the l a t t e r approach.

In order to anal yze a 11 p u b l i c

sect or expendi t ur es i n M i c h i g a n , l o c a l

government e x p e n d i -

tures ar e lumped t o g e t he r wi t h the s t a t e government' s
expendi t u r es and the t o t a l

i s a n a l y z e d as though i t

were

spent e n t i r e l y by t he s t a t e government.
Thi s procedure i s analogous to t h a t used i n s t u d i e s
which aggregate f e d e r a l , s t a t e and l o c a l
The d i v e r s i t y

of local

le v e ls of spending.

u n i t s o f gover nment i s

not reco gn ize d

by t h i s p r o c e d u r e , but c o n d u c t i n g s e p a r a t e anal yses f o r
of the 83 c o u n t i e s ,

260 c i t i e s

and 1247 t o w n s h i p s i n M i c h i g a n

woul d be an u n w i e l d l y u n d e r t a k i n g .
is s a c r i f i c e d

by a g g r e g a t i n g a l l

seems t o be no r e a l i s t i c

each

Thus, w h i l e some accuracy

l e v e l s o f government, t he r e

alternative.

Eapen and A. Thomas Eapen, " I n c i d e n c e o f Taxes and Expendi ­
tures o f C o n n e c t i c u t S t a t e and Local Gover nment s, F i s c a l
Year 1967" (a paper p r e p a r e d f o r t he C o n n e c t i c u t S t a t e
Revenue Task F o r c e , 19 70 ) ; W. I r w i n G i l l e s p i e , " E f f e c t s o f
P u b l i c E x p e n d i t u r e on t he D i s t r i b u t i o n o f I nc o m e , " i n
Essays i n F i s e a l F e d e r a l i s m , ed. by R i c h a r d Musgrave (Wash­
ington:
The Brookings I n s t i t u t i on , 1965) „ pp. 12 2- 1 86 ;
Ri chard Musgrave, Karl Cases and Herman Leonard, The D i s ­
t r i b u t i o n o f F i s c a l Burdens and Benefi ts ( Cambri dge: Harvard
I n s t i t u t e o f Economic Research, 1973) ; Richard Musgrave and
Darwin D a i c o f f , "Who Pays the M i c h i g a n Taxes?", M i c h i g a n Tax
Study S t a f f Papers ( L a n s i n g , 1 9 5 8 ) ; Morgan Reynolds and
Eugene Smol ensky, The Post Fi sc Di s t r i b u t i on: 1961 and 1970
Compared ( Mad i s o n:
I n s t i t u t e f o r Research on P o v e r t y , 1 9 7 4 ) ,
h e r e i n a f t e r r e f e r r e d to as Reynolds and Smolensky, ( 1 ) ;
Morgan Reynol ds and Eugene Smo l e n s k y , The Po s t F i s c D i s t r i b u t i o n:
1961 and 1 970 Compared, N a t i o n a l Tax J o u r n a l , V o l .
27 (December 1 9 7 1 ) , pp. 5T5-1T31); Charles Ross, "The E f f e c t s
of S t a t e and Local Government Expendi t ur es on the D i s t r i b u ­
t i on of I ncome i n Oklahoma" ( unpubl i shed Ph.D. di s s e r t a t i on
Oklahoma S t a t e Uni versi t y , 1972 ) ; N e i l Si n g e r , "Income
Redi s t r i but i on and F i s c a l Pol i c y " ( unpubl i shed Ph.D. di s s e r ­
ta t i on , S t a n f o r d Uni ver si t y , 1965) ; Tax Founda t i on , I n c . ,
Tax Burdens and B e n e f i t s o f Government Expendi t u r e s by Income
(Tl a s s (New YoTkT Tax F o u n d a t i o n , I n c . , 1 9 67 ) ; Rufus T u c k e r ,
^The D i s t r i b u t i o n o f Government Burdens and B e n e f i t s , "

6
There i s c o n s i de r a b l e evidence to suggest t h a t the
redistributional

impact o f the t o t a l

of government i s

significant.

l ev el

spending o f a l l

The s m a l l e r number o f s t a t e -

s t u d i e s a 1 so demonstrates t h a t p u b l i c s e c t o r e x p e n d i ­

tures wi t h i n a s i n g l e s t a t e are r e d i s t r i b u t i v e
8).

1evel s

Si nee f i seal

1956, when t o t a l

(see f o o t n o t e

ex pendi t ur es o f s t a t e and

l o c a 1 governments i n Mi chigan were l e s s

than $2 b i 11 i on*

no study has been undertaken t o e s t i ma t e the impact o f
these expendi t ur es on M i c h i g a n r e s i d e n t s .

Thus , i t

is

impor­

t a n t t o d e t e r m i n e t h e i m p a c t o f t he a p p r o x i m a t e l y $ 4 . 8
b illio n

spent by a 11 1evel s o f M i c h i g a n government i n

fiscal

1970.
Procedures Used i n

the Study

There ar e t h r e e types o f f i seal
The f i r s t

i s an a n a l y s i s

i nci dence s t u d i e s :

of the i nci dence o f t a x e s ; the

second examines the i n c i d e n c e o f expendi t u r e s ;

and th.e t h i r d

analyzes the combi ned i nci dence of taxes and expendi t u r e s .
These s t u d i e s b e g i n by def i ning income, which i s
dence base u s u a l l y
established,

used.

the i n c i -

Once the d e f i ni t i on o f i ncome i s

the d i s t r i b u t i o n

o f t h a t income among fami 1i es

Ameri can Economic R e v i e w , Papers and Proceedings (May, 1 9 5 3 ) .
There i s a 1so an e x t e n s i v e 1i t e r a t u r e o f st u d i e s of t h i s
type f o r other c o u n t r i e s ; f o r a r e v i e w , c r i t i q u e and b i b l i o ­
graphy, see R. M. Bi rd and L . DeWul f, F i s c a 1 I ncidence
Studies in Developing C o u n t r i e s :
Survey and C r i t i q u e
TWashi n g t o n : I n t e r n a t i o n a l Monetary Fund, 19 74 ) .
9
Musgrave and Dai c o f f t op. c i t . , p. 152.

7

and u n r e l a t e d i n d i v i d u a l s i s d e t e r m i n e d .

This i n f o r m a t i o n

is necessary because the st u d i e s a t t e mp t to measure how the
t axi ng a n d/ or spending p o l i ci es of the p u b l i c s e c t o r a f f e c t
the way income i s

distributed.

In o r d e r t o measure t he i m p a c t o f t a x i n g o r s p e n d i n g
by the p u b l i c s e c t o r o ne , or both* of two methods i s used.
One t e c h n i q u e assumes t h a t t he d e f i n i t i o n

and d i s t r i b u t i o n

o f income a r e b e f o r e t a x e s and expendi t ur e s , i . e . ,
def i ni t i on and d i s t r i b u t i o n

t he

.

o f income a r e t h o s e w h i c h w o u l d

e x i s t i n the absence of a p u b l i c s e c t o r .

This d e f i n i t i o n

of

income woul d i n c l u d e money used to pay t a x e s » but would not
i n c l u d e government t r a n s f e r payments r e c e i v e d as income.
I nt r od uc i ng a p u b l i c a c t o r i nto t h i s s i t u a t i o n wo ul d mean
r e d u c i n g incomes by t h e amount o f t a x e s and r a i s i n g them b y
the amounts of t r a n s f e r s and expendi t u r e b e n e f i t s .
butional

incidence,

using t h i s

changes i n the d i s t r i b u t i o n

D is tri­

method, i s measured by the

of income which r e s u 1t from t he

i n t r o du c t i on o f taxes and expendi t u r es by the p u b l i c
s e c t o r . ^®
A second method used to examine p u b l i c s e c t o r i n c i ­
dence ta kes as i ts i nci dence base the d e f i ni t i on and d i s t r i ­
b u t i o n o f income which i n c 1ude the impact o f taxes and
expendi tures on incomes.
taxes i s

In o t he r wor ds, i ncome used to pay

not i nciuded i n e i t h e r
10

the d e f i ni t i o n or

The shortcomi ngs associ ated w i t h the concept o f
addi ng or r emovi ng a p u b l i c s e c t o r are di scussed i n Chapter

8

d i s t r i b u t i o n o f income, but t r a n s f e r payments and the bene­
f i ts of government expendi t u r es ar e i nl cuded i n i ncome.
t hi s c a s e , d i s t r i b u t i o n a l

In

i nci dence i s measured by the

changes i n i ncomes which would r e s u l t i f

taxes and spending

were d i s c o u n t e d .
Studi es which use t he f i r s t o f these methods must
be gi n by dev i s i n g an income d i s t r i b u t i o n which excludes
t r a n s f e r payments.

The most common s t a r t i n g

devel opi ng an income d i s t r i b u t i o n
Census d e f i n i t i o n

is

point for

the Bureau o f the

and d i s t r i b u t i o n o f money i ncome.

Cens us

money i ncome,

however, i nc l udes most money t r a n s f e r s and

a Iso i nciudes

money whi ch w i l l

be used to pay t a x e s .

In

order to get a p r e - p u b l i c s e c t o r d e f i ni t i o n and d i s t r i b u t i o n
of i ncome, t h e r e f o r e , money t r a n s f e r payments mus t be sub­
t r a c t e d from the d i s t r i b u t i o n o f money income.
By the same r e a s o n i n g , a study wh i c h uses the second
method of measuring i nc i d e nc e must deter mi ne the i n c i d e n c e
of both taxes and e x p e n d i t u r e s - - e x c l u d i n g money t r a n s f e r
payments--and a d j u s t the base d i s t r i b u t i o n o f income to
r e f 1ect t h e s e s u b t r a c t i ons and addi t i ons.
f o r these a d j u s t m e n t s
money used to

is

Agai n,

the reason

t h a t Cens us money i ncome i ncl udes

pay taxes and money t r a n s f e r

payments.

I f t he

study i s desi gned to measure the impact of e l i m i n a t i ng the
p u b l i c s e c t o r , the amounts o f taxes must be s u b t r a c t e d f rom,
and the amounts o f expendi t u r e benef i t s , except t r a n s f e r s ,
added to the basi c d e f i n i t i o n of income.

la l

Thi s procedure

9

yields

the d i s t r i b u t i o n of income which i nc i u d e s the d i s t r i ­

butional

i mp a c t o f the p u b l i c

sector.

Essent i a 1l y , the

d i f f e r e n c e between the two methods i s an i ndex number
problem,

i.e .,

the onl y d i f f e r e n c e i s

in

the income base

upon wh i ch i ncidence percentages ar e c a l c u l a t e d .
This study uses the f i r s t
cussed above:

the i n i t i a l

income d i s t r i b u t i o n

by e s t i m a t i n g the d i s t r i b u t i o n
subtracting
trib u tio n

of the techni ques d i s ­
i s a d j us t ed

o f t r a n s f e r payments and

t h e m, l e a v i n g a p r e - p u b l i c

s e c t o r income d i s ­

f o r Michigan.

I n f o r m a t i on about ei t h e r taxes or expendi t u r es al one
i s I n s u f f i c i e n t to c h a r a c t e r i z e p r o p e r l y t he impact o f a
pu b l i c s e c t o r ; a thorough a n a l y s i s r e q u i r e s knowl edge o f
both taxes and e x p e n d i t u r e s .

Thus, the a t t r a c t i v e n e s s of

t h i s s t u d y 1s enhanced because Douglas R o b e r t s i s c u r r e n t l y
undertaking a tax incidence study f o r
in M i c h i g a n .

11

t h e same t i m e p e r i o d

This d i s s e r t a t i o n on expendi t u r e s has been

desi gned to be complementary to R o b e r t s ' d i s s e r t a t i o n by
us i ng the d e f i ni t i o n and di s t r i b ut i on of i ncome he developed
f o r hi s s tudy ( R o b e r t s ' i ncome d e f i n i t i on and d i s t r i b u t i o n
are e x p l a i n e d i n Chapter I V ) .
these s t u d i e s ,

a measure of the t o t a l

Michigan governments w i l l
11

By combi ni ng the r e s u l t s
fisca l

of

impact o f the

be a v a i l a b l e .

Douglas R o b e r t s , " I nci dence o f S t a t e and Local
Taxes: A Case Study f o r M i c h i g a n , 1970" (unpubl i shed Ph.D.
di s s e r t a t i on, M i c h i g a n S t a t e Uni v e r s i t y , 1 9 7 5 ) .

10

In a d d i t i o n to an a n a l y s i s

of e x p e n d i t u r e i n c i d e n c e

s i m i l a r to those c i t e d i n f o o t n o t e 8, a r a d i c a l

a n a l y s i s of

expendi t u r e i nci dence I s al so undertaken i n t h i s study.

The

purpose of doing two t y p e s o f anal yses i s to demonstrate
t h a t the r e s u l t s o f an e x p e n d i t u r e i n c i d e n c e st udy are
sensitive

to basi c assumpti ons about the r o l e o f the S t a t e

in an advanced capi t a l i s t s o c i e t y .
is f a c i l i t a t e d

by u s i n g p r o c e d u r e s s i m i l a r

previous stu d ie s
w ill

d iffe r

The comparison of r e s u l t s
t o t h o s e used i n

i n each o f the two a n a l y s e s .

p rin cip a lly

The r e s u l t s

because o f the d i f f e r e n t assumptions

about the r o l e o f the S t a t e .
The convent i onal
studies

of this

analysis

t y pe and a l l o c a t e s

s i m i l a r to those used i n p r e v i o u s
analys i s s on the ot her hand j
t he r o l e

is

s i m i l a r to previ ous

e x p e n d i t u r e s by p r o c e d u r e s
studies.

re lie s

The r a d i c a l

on a M a r x i s t a n a l y s i s

of

o f t he S t a t e i n a c a p i t a l i s t s o c i e t y and uses

i nci dence assumpti ons which f o l 1 ow from soci a l i s t premi ses
about the s t a t e .
The Scope o f the Study
The f i ve expendi t u r e c a t e g o r i e s discussed in 1a t e r
chapters are ( 1)

t r a n s f e r payments

( i n c l u d i n g debt i n t e r e s t ,

w e l f a r e s unemployment i nsur ance, workman' s compensation and
government r e t i r e m e n t programs) s ( 2)

e d u c a t i o n s ( 3)

( 4) h e a l t h and hospi t a l s , and ( 5) a l 1 o t h e r general
t ures .

This c l a s s i f i c a t i o n

is

highways,
e x pendi ­

based on d e f i n i t i on s used in

the Bureau of the Census p u b l i c a t i o n Governmental

Finances

n
in 1969-70.

12

Fiscal

1970 was chosen because i t

coi nci des

w i t h the p er i o d analyzed by Roberts and because data are
more r e a d i l y a v a i l a b l e f o r t h i s p er i o d than f o r more r e c e n t
years.

Census data were chosen because o f t h e i r consis t e n t

and w e l l - d e f i n e d e x p e n d i t u r e c a t e g o r i e s and because they
are the only sources t h a t i nclude a l l

local-level

ex p e n di ­

t ur es .
The a n a l y s i s of each of the f i v e

expenditure cate­

gori es i s di scussed i n two se p a r a t e c h a p t e r s ; f o r each
e x p e n d i t u r e c a t e g o r y t h e r e i s a c h a p t e r wh i c h c o n t a i n s

t he

co n v e nt i on a 1 a n a l y s i s and anot her c ha pt e r which cont ai ns the
r a di ca 1 ana l y s i s .
and h o s p i t a l s

Transfers.,

e d u c a t i o n * hi ghways and heal th

c o m p r i s e a p p r o x i ma t e l y 77 p e r c e n t o f p u b l i c

s e ct o r expendi t ures in 1970.

For the purpose of t h i s

s t u d y , these f i r s t f o ur c a t e g o r i e s ar e c a 11ed "speci f i c
goods expendi t u r e s . "

The f i n a l

category s which i nc l udes

i t ems s uch as p o l i c e ,

f i re and sani ta t i on expendi t u r e s , i s

cal 1 ed "genera 1 goods e x p e n d i t u r e . "
The ra t i ona1e f o r t h i s
tures

di s t i n c t i on i s

f o r ed u ca t i on and h i g h w a y s ,

t h a t expendi-

f o r exa mpl e, ar e assumed,

in the convent i onal a n a l y s i s , to be undertaken p r i nci p a l l y
to benef i t speci f i c groups of p e o p l e , e . g . ,
hi ghway u s e r s .

These groups of people ar e i d e n t i f i a b l e

and the benef i ts of p u b l i c
12

st udent s and

se c t o r spendi ng on t h e i r b e h a l f

U. S. Department o f Commerce, Bureau o f the Census,
Governmental Fi nances in 1 969-70 (Washington:
U.S. Govern­
ment P r i n t i n g O f f i c e , 1971) .

12

can be a l l o c a t e d to them.

Expendi tures f o r p o l i c e p r o t e c -

t i o n and s a n i t a t i o n , on the o t h e r hand,

ar e assumed to

benef i t everyone i n the s o c i e t y and p a r t i c u l a r b e n e f i c i a r i e s
are not i denti f i a b l e .
The next two ch a pt e r s ar e devoted to di s cuss i ons o f
the conventi onal

and r a di cal a n a l y s e s .

Both types of

a n a l y s i s are examined w i t h r e s p e c t to the l i t e r a t u r e con­
cerni ng each and the c r i t i cisms to which they may be sub­
ject.

In each case,

the a n a l y t i cal model f o r the e x p e n d i ­

t ure i nc i de nc e c a l c u l a t i o n s which f o l 1ow i s developed i n
these c h a p t e r s .
Chapters IV and V dea1 w i t h the d i s t r i b u t i o n of
income and t r a n s f e r payments from the co n ve nt i on a l
radi c a 1 approaches, r e s p e c t i v e l y .

and

The remai ni ng chapt er s

cont ai n the analyses o f the o t h e r f ou r e x p e n d i t u r e c a t e gori e s , a summary of the i nci dence o f a l l
a concl usi on.

expendi t u r es and

CHAPTER I I
THE CONVENTIONAL ANALYSIS

Before begi nni ng the di scussi on o f the methodology
employed i n t h i s d i s s e r t a t i o n , an exami n a t i o n of previ ous
s t udi es of t h i s

type i s a p p r o p r i a t e .

st udi es r e s t on two major p r e mi s e s :
governmental
that this
(2)

In a l l
( 1)

ca se s, these

t h a t the impact of

t ax and e x p e n d i t u r e p o l i c i e s i s measurable and

impact i s not the same f o r a 11 income groups, and

t h a t the b e n e f i ts o f government expendi t u r es ar e

u l t i m a t e l y c o n f e r r e d on i n d i v i d u a 1s and t h a t these i n d i v i d u a l s
can be i d e n t i f i e d .
Un d e r l y i n g the f i r s t premi se i s the i dea o f i n t r o duci ng i n t o a p r i vate economy a p ubl i c s e c t o r which provi des
social

goods.

The i ndi vi duals in the p r i vat e economy have

meas ur ab l e i ncomes, or c o l l e c t i ons o f a s s e t s , which d e f i n e
t h e i r economic p o s i t i o n s .

I nt r o d u c i ng a p u b l i c s e c t o r which

suppl i es socia 1 wants d i v e r t s

resources from t he p r i v a t e

se ct o r and i n f 1uences the p r e v i o u s l y e x i s t i ng economic
posi t i ons o f the i n d i v i d u a l s .

The u l t i m a t e adj ustment to

those changes in economi c posi t i o n s

13

is

the r e s u l t o f the

14

taxes an i n d i v i d u a l

pays and the b e n e f i t s a person r e c e i v e s
1
from government expendi t u r e s .
The change i n economic
pos i t i on i s what i s commonly used to d e f i ne i nci dence.
T i b o r Barna express es the ra t i o n a 1e wh i c h s u p p o r t s
the second p r e m i s e :
The c e n t r a l i dea, i n the concepti on o f the r e d i s ­
t r i b u t i o n of i ncomes* i s t h a t t he e n t i r e n a t i o n a l
o ut p ut i s a l l o c a b l e to the f a c t o r s o f p r o d u c t i o n a
the e n t i re n a t i onal i ncome a c c r u e s to i n d i v i d u a l s *
and the e n t i re n a t i onal expend i t u r e b e n e f i t s
i ndi v i d u a l s .2
Two a l t e r n a t i v e

methods of a t t r i but i ng the b e n e f i t s

gover nment e x p e n d i t u r e t o i n d i v i d u a l
as members of an income c l a s s ,
conventional

studies.

recipients*

of

id e n tifie d

have been advanced i n the

The a l t e r n a t i v e s

f l o w c o n c e p t and t h e b e n e f i t s - r e c e i v e d

are c a l l e d
concept.

t h e money-

(The l a t t e r

i s al s o known as the c o s t s - i n c u r r e d - o n - b e h a l f - o f c o n c e p t . )
Both concepts assume t h a t t r a n s f e r payments a c c r u e to t h e
recipients,

b u t t he money-f 1ow c o n c e p t wo ul d assume t h a t *

f o r example, government subsi di es f o r ed u ca t i o n accrue to
educa t o r s , w h i l e the b e n e f i t s - r e c e i v e d approach would assi gn
the benef i ts of the s ubsi di e s to those who r e c e i v e the
educa t i ona1 a d v a n t a g e s .

The benef i t s - r e c e i v e d approach

consi ders money f l o w s as i n t e r me d i a t e products and the out p ut
of s e r v i c e s

as the f i n a l

products.

As A d l e r p o i n t s o u t , the

W. I r w i n G i l l e s p i e * The I n c i d e n c e o f Taxes and
Expendi t u r es i n the Canadi an Economy, Report No. 6 . 1 , a s tudy
prepared f o r t he Royal Commissi on on T a x a t i o n ( O t t a w a :
Queen 1s Pri n t e r , 1 9 6 5 ) , pp. 1 - 2 , ci ted in Ross , op . ci t . ,
pp. 1 1 - 1 2 .
p
Barna , op. c i t ♦ , p. 15.

15

i m p l i c a t i o n o f the money-fl ow concept i s t h a t the incomes
o f those who a c t u a l l y r e c e i v e the government payments ( i n
t h i s example,

the e d u c a t o r s ) would be zero in the absence

of the government program.

3

Thus 3 i n A d i e r ' s o p i n i o n , and

a p p a r e n t l y i n the opi ni ons of the authors of o t h e r ex p e n di ­
t ur e i n c i d e n c e s t u d i e s ,
p r i a t e , except i n

the money - f 1ow concept i s i nappro-

the case o f t r a n s f e r s .

The i n a p p r o p r i a t e n e s s o f the money-f1ow concept
d e r i ves from the assumption t h a t expendi t ur es ar e not undertaken to b e n e f i t educators but ar e made to b e n e f i t the
s t u d e n t s who r e c e i v e the educat i on.
concept i s

d e r i v e d d i r e c t l y from convent i onal

about t he r o l e
theory l i m i t s

of the S t a t e .

assumptions

E s s e n t i a l l y , the n e o c l a s s i c a l

the S t a t e to i n t e r f e r e n c e s i n t h e p r i vate

market system f o r t h r e e pur poses:
system,

The b e n e f i t s - r e c e i v e d

to s t a b i 1 i z e the economic

to a 11ocate economic resources e f f i c i e n t l y ,

and to

a d j u s t the di s t r i b u t i on of i ncome and w e a l t h which r e s u l t s
from the i n t e r p l a y of market f o r c e s . ^
These f u n c t i o n s a r e j u s t i f i e d , in the convent i onal
i d e o l o g y - by t h e assumption t h a t the S t a t e r e p r e s e n t s
individual
as a whole.

wishes and act s

i n the i n t e r e s t s o f the s o c i e t y

Thus, when the government, a c t i n g f o r the

S t a t e , undertakes expendi t u r e programs to change the market
a l l o c a t i o n o f resources or the d i s t r i b u t i o n o f income, i t
^Adler,
4

op.

c i t . , pp.

Musgrave, op.

ci t . ,

360- 361.
p.

5.

16
i s a c t i n g in the i n t e r e s t s of a l l
it

provi des general

segments o f s o c i e t y when

goods, or in the i n t e r e s t s o f s p e c i f i c

groups i n the soci e t y when i t provi des speci f i c goods.
The Genera 1 E q u i l i b r i u m
There are s e v e r a l

Problem

i mpl i c a t i o n s whi ch a r i s e from the

b e n e f i t s - r e c e i v e d approach whi ch could make i t
va1ue as w e l l .

The f i r s t

s e c t o r 9 t he u n d e r l y i n g

is

that in

of doubt f ul

the absence of a p u b l i c

income d i s t r i b u t i o n woul d be unchanged.

For e x a m p l e s most o f t he s t u d i e s

u s i n g income as a measure

of economi c p o s i t i o n use ei t h e r one or both o f two i ncome
d e f i ni t i ons:
not i n c l u d e
i.e .,
tor;

the f i r s t

d e f i ni t i on i s b e f o r e - t a x and does

t r a n s f e r payments and b e n e f i t s

of expendi t ur es ,

t h i s approach excludes the impact o f the p u b l i c sec­
the second d e f i n i t i o n i s

after

taxes and i nc i udes

t r a n s f e r payments and expendi t u r e benef i t s .
The i n c i d e n c e ,

by i ncome c l a s s ,

of ex p en di t ur es and

taxes i s then a p p l i e d to these income d e f i n i t i o n s and di stributions.

None of the authors of these s t u d i e s , however,

e x p l i ci t l y accounts f o r the i n f 1uences t h a t the i n t r o d u c t i o n
o f government has on the i ncome d i s t r i b u t i o n beyond t h a t
r e f 1ec ted s o l e l y i n

t a x i ng and spending.

Aaron and McGui re

summari ze t h i s problem s u c c i n c t l y :
The d i s t r i b u t i o n a l studi es noted do not at t e mpt to
sol ve the genera 1 e q u i l i b r i u m problem of cl os i ng
governments down and r e a 11 o c a t i ng t h e i r resources
to the p r i vat e economy.
As an a p p r o x i m a t i o n , they
at t e mp t to e s t i mate f o r each i ncome cl ass i t s
i ncome b e f o r e taxes a t the e x i s t i n g e q u i 1i b r i urn

17

and i t s e x p e n d i t u r e e q u i v a l e n t a f t e r government
disbursement, a t the same e x i s t i n g e q u i 1i br i u r n .5
The genera 1 e q u i 1i br i u m problem i s s e r i o u s , but
e q u a l l y i mp o r t a n t i s

the i dea t h a t the no-government or

p r e - p u b l i c s e c t o r s i tua t i on i s

reali stic .

In o t h e r words,

is the government/no-government comparison e i t h e r useful
or r e l e v a n t ,

e s p e c i a l l y as regards the n o t i o n t h a t incomes

ar e unchanged i n

the absence o f government?

If

the a n a l y s i s

were concerned w i t h a s i n g l e e x p e n d i t u r e , or even a group o f
expendi t u r e s , ra t h e r than w i t h a l l

go v e r n me n t s p e n d i n g ,

woul d be more r e a s o n a b l e t o assume t h a t

t he u n d e r l y i n g

it
dis­

t r i b u t i o n of income would be unchanged i n the absence of
these programs; government pol i c i es to promote f u l l
ment and t he m a r g i n a l
toward t h i s
is

res u l t .

e mp l o y ­

i m p a c t o f t h e s e programs woul d t end
But, when government s p e n d i n g in t o t o

di s cu ss ed , the assumption i s

tenuous and even n o n s e n s i c a l .

In t he case o f a s p e c i f i c

expenditure or tax i t

is

possi bl e to use as a compari son f o r i nci dence purposes the
i nci dence of another program which was not enacted or the
most e f f i c i e n t a l t e r n a t i v e

to the e x i s t i n g program.

no-government assumption i s ,
it

The

o f course , u n r e a 1i s t i c , but

might be p o s s i b l e to h ypot hes i ze what the no-government

l ab or f o r c e p a r t i ci p a t i on and savings r a t e s would b e , and
use these es t i mat e s to deri ve a no-government i ncome
Henry Aaron and M a r t i n McGuire, P u b l i c Goods and
Income P i s t r i b u t i o n , R e p r i n t 202 (Washi ngton!
The Brookings
I n s t i t u t i o n ! ’ 197l"T7 p. 907.

18

distribution.®

Thi s l a t t e r a l t e r n a t i v e would a v o i d the

tenuous assumption t h a t the income d i s t r i b u t i o n i s
i n the absence o f government.
income d i s t r i b u t i o n ,

unchanged

Computing the pre-government

h o we v er , woul d i n v o l v e c o n j e c t u r e and

a s s u m p t i o n s w h i c h could be a t 1ea s t as quarrelsome as those
of the o r i gi na1 government/no-government assumpti on.
For t he purposes o f t h i s
i n mind t h a t
f i seal

these c r i t i c i s m s

incidence studies

to f e d e r a l - l e v e l
studies,
cant.

This i s

and p o l i t i c a l

principles:
twined w i t h

have been l e v i e d a g a i n s t

In t he case o f s t a t e - l e v e l

equilibrium

i s s u e s a r e n o t as s i g n i f i ­

because f e d e r a l l y - d e t e r m i n e d economi c,
policies

a r e more i m p o r t a n t v a r i a b l e s

determi nat i on o f a s t a t e ' s
state-level

s h o u l d be k e p t

i n g e n e r a l , but p r i m a r i l y appl y

studies.

the general

study i t

policies.

income d i s t r i b u t i o n

This

( 1) S t a t e - l e v e l
t he n a t i o n a l

results

f rom

legal

in the

t han are

a t l e a s t two

economies a r e d e e p l y i n t e r ­

economy and t h e r e f o r e a r e h e a v i l y

i n f 1uenced by and dependent on f e d e r a l l y - d e t e r m i n e d economic
policy.
health

A good example of the dependence o f the economic
of Mi chi gan on t h e n a t i o n a l

c o mp a r i s o n o f unemployment r a t e s
Since 1967 Mi c h i g a n ' s

g i v e n by a

i n M i c h i g a n and t h e U.S.

unemployment r a t e has always been

hi gher than t he n a t i o n a l

s ity

economy i s

r a t e and has v a r i e d di r e c t l y wi t h

®Eugene Smolensky, unpub 1i shed memorandum, Uni v e r o f W i s c o n s i n , cour t esy of Leanna S t i e f e l .

19

changes 1n the n a t i onal
Mi chi gan a l s o r e a c t s

rate. ^

The automoti ve i n d u s t r y i n

to changes i n n a t i ona1 economic c o n d i -

t i o n s and i s an i mp o r t a n t barometer o f economi c condi t i ons
wi t hi n the s a a t e .
bi 11 i on ,

Further s at a lev el

the pub 1i c s e c t o r budgets i n Mi chigan amount to

less than 3 p e r c e n t of the l e v e l
fiscal
cies

of a p p r o x i ma t e l y $5

1970.

of federal

spending i n

( 2 ) Si mi 1a r 1y , the 1ega1 and p o l i t i cal p o l i ­

imposed by s t a t e - l e v e l

and gui ded by f e d e r a l

governments a r e al s o 1imi ted

laws and p o l i c y .

ar r a n g e me n t s and p o l i t i c a l

Constitutional

organizations

are,

o f course,

the

most i mp or t an t examples of these c o n s t r a i n t s .
The conceptua1 e x e r c i se of i n s e r t i ng or removi ng a
state-level

p u b l i c s e c t o r i s more a c c e p t a b l e ( a l t h o u g h no

more r e a 1i s t i c)

i n t h i s c o n t e x t because the u n d e r l y i ng

income d i s t r i b u t i o n woul d be 1ess s u b j e c t
r e s u l t of t h i s r e l a t i ve l y m a r g i n a l
least,

to change as a

influence.

At the very

t he bias i ntroduced by t h i s no-government assumpti on

is s mal l

compared to t h a t pr esent i n n a t i o n a l - l e v e l

In some ways a s t a t e - l e v e l

studies.

study i s analogous to the a n a l y s i s

of a si ngle e x p e n d i t u r e

item in a national

i mpact o f the program i s

r e l a t i vel y s m a l l

budget;

i.e .,

compared w i t h

the
the

magni tude of the major determi nants o f the di s t r i but i on of
income.
^"Labor For ce and Unemployment C h a r a c t e r i s t i c s ," a
d r a f t paper prepared by the Mayor' s O f f i c e of Manpower f o r
the Labor Market Advi sory Counci 1, De t r o i t , Mi c h i g a n , May
3, 1974.

20
D i s t r i b u t i n g General Goods Expendi tures
Another c r i t i c i s m of previ ous s t u d i e s o f t h i s
been l e v i e d a g a i n s t the methods used to d i s t r i b u t e
f i ts f rom government expendi t u r e s .

type has

the bene­

This problem a r i s e s

p r i m a r i l y in the di s t r i b u t i on o f b enef i ts from gener al

goods

and al s o the b e n e f i ts o f expendi t u r es which can be assi gned
parti a l l y

to speci f i c i n d i v i d u a l s

but which al s o gener at e

major ex t er na 1i t i e s .
There i s

consi d e r a b l e u n c e r t a i n t y among t he a u t h o r s

o f p r e v i o u s s t u d i e s a b o u t t he p r o p e r method o f d i s t r i b u t i n g
g e n e r a l e x p e n d i t u r e benef i t s .
cally

General

expendi t u r e s t y p i -

have been a l l o c a t e d e i t h e r by t he d i s t r i b u t i o n

of

i ncome, on a per f a m i l y b a s i s 9 o r by a c o m b i n a t i o n o f t he
two.

Aaron and McGuire have shown t h a t a l l o c a t i o n o f

general

expenditures

is

p a rticu la rly

a b o u t the n a t u r e o f the u t i l i t y
recipients.

Their a n aly sis

sensitive

f u n c t i o n of the ben ef i t

recogni zes t h a t the knowl edge

of household u t i 1i ty f u n c t i o n s whi ch i s
values

to cons ump t i on of p u b l i c goods i s

a l s o s t a t e a need to gener at e e s t i m a t e s
assumed ut i 1i ty f u n c t i o n s
expendi t u r e s .

to assumptions

necessary to assi gn
1acki ng .

B u t , they

o f the i n f 1uence of

on the di s t r i b u t i on o f g e n e r a l

T he r e f o r e , Aa ron and McGuire a r b i t r a r i l y

assume two general

u t i 1i t y f u n c t i ons and compare the res u l t s

deri ved from these f u n c t i ons wi t h those o f the f u n c t i ons
,. .
8
i m p l i c i t in previ ous s t u d i e s .
8

Aaron and McGuire, op. ci t . ,

p.

910.

21
The basis on which they assume these f u n c t i ons i s
that i t

is p o s s i b l e to hypothesi ze the shapes o f u t i 1i t y

f u n c t i o n s » on the a v e r a g e , whi ch w i l l
i n d i v i d u a l s ' marginal
income and g e n e r a l

transfers

goods.

To use t h i s methods one assumes

and s p e c i f i c

s e c t o r income d i s t r i b u t i o n
taxess transfers
class.

Thi s

"private"

t he p r o v i s i o n

goods and t h a t t he pre-pub l i e

and s p e c i f i c

goods income t o each income
yie ld

the average amount of

income i n each income b r a c k e t .

of s u b s t i t u t i o n between t hi s p r i v a t e

to i n d i v i d u a l s

functions

i n each income b r a c k e t .

im p licit

that assigning

constant marginal

rate

goods b e n e f i t a l l o c a t e d
Q

have made no m e n t i o n o f the u t i l i t y

i n t he d i s t r i b u t i o n a l

benefits

The m a r g i n a l

income and general

the v a l u e of g e n e r a l

Previous s tu d ie s

of r e d i s t r i ­

has been a d j u s t e d by a l l o c a t i n g

calculatio n will

goods d e t e r m i n e s

es t i mat e s of

r a t e s of s ubs t i t u t i on between p r i v a t e

t h a t t a x e s have been l e v i e d f o r
butive

yie ld

t e c h n i q u e s empl oyed;

on a p e r - f a m i l y basis i m p l i e s a

u tility

of income.

The u t i l i t y

functions

used by Aaron and McGuire assume., in t he f i r s t

case» that

rnargina 1 u t i l i t y

o f income i s a 1ways p o s i t i v e s

declines w ith

income,, and t h a t

t he t o t a l

i ncome r i s e s ;
u tility
and t h a t

is

u tility

t h e second f u n c t i o n

rises
implies

al ways p o s i t i v e b u t tends

total

u tility

c onver ges

w i t h o u t l i m i t as
th at marginal

t o zer o as income r i s e s

t o an a r b i t r a r y

constant.
o

The f u n c t i o n s

a r e MU(Y) - Constant/ Y and MU( Y) -• Const ant / Y

9 I b i d . , p.

919.

*

22

where Y 1s t he sum o f di sposabl e income and s p e c i f i c goods
income.

Essentially,

to a l l o c a t e b e n e f i t s

t h e r e s u l t o f using both f u n c t i o n s
inversely

income because t he f u n c t i o n s
f o r p u b l i c goods r i s e s w i t h
fica n tly
fits

u tility

imply t h a t w illin g n e s s
i ncome.

d iff e r e n t distributions

f r om t ho s e c a l c u l a t e d

to the margi nal

The r e s u l t s

o f general

is

of

t o pay

show s i g n i ­

e x p e n d i t u r e bene­

i n t he Tax F o u n d a t i o n s t u d y . ^

S p e c i f i c a ' l l y 9 t he Tax F o u n d a t i o n study found s i g n i ­
fican t

income r e d i s t r i b u t i o n

to 1ower income c l a s s e s .
whi c h f u n c t i o n

f r om income cl asses ov e r $6 , 00 0

Aaron and McGui r e, de pendi ng on

they a p p l i e d ,

f ound t h a t t he r e d i s t r i b u t i o n

was less than t h a t shown by t he Tax F o u n d a t i o n 5 a l t h o u g h in
the same d i r e c t i o n

(MU - Cons t a n t / Y ) s and t h a t i n t h e case

of the f u n c t i on MU = Const ant / Y
tributed

9 positive

amounts of r e d i s ­

income were r e c e i v e d by both the l o w e s t and h i g h e s t

two income c l a s s e s ,

while

t he m i d d l e groups r e c e i v e d nega­

t i v e amount s.
Aaron and McGuire were unable to be s p e c i f i c about
t he most a p p r o p r i a t e
have r e s o l v e d t h i s
three e m p iric a l

u tility

function.

u n c e r t a i n t y by c i t i n g

studies

rate of s u b s titu tio n

Maltal

11

claims

t he r e s u l t s

to

of

d e s i g n e d to e s t i m a t e t he m a r g i n a l

between g e n e r a l

goods and p r i v a t e

^°Tax F o u n d a t i o n s I n c . , op. c i t .
11
Shiorrio M a l t a l , " P u b l i c Goods and Income D i s t r t b u tion:
Some F u r t h e r R e s u l t s , " Econometri c a , Vo l . 41 (May,
1973) 9 pp. 561-568.

23
income.

The proper u t i l i t y

f u n c t i o n , accordi ng to M a i t a l ,

is MU( Y) = C/ Y 1 * 5 . 12
In spi te of Mai t a l ' s cl a i m t h a t his u t i 1i ty f u n c t i o n
w ill yield

11.

.

. b e l i e v a b l e and unambiguous e s t i mat e s o f

t he net i nc i d e nc e ( t a x e s
system,"

13

this

study uses f i v e

a per f a m i l y b a s i s ,
broad i ncome,
( 4)

( 3)

a l l o c a t i v e methods:

( 2 ) by t he d i s t r i b u t i o n

( 1 ) on

o f adjusted

o n e - h a l f by income and o n e - h a l f per f a m i l y ,
1 5

u s i n g MU( Y) = C/Y *

Robert's

less ben ef i t s ) o f the e n t i re f i s c a l

where Y

is

d e t e r m i n e d by using

l e a s t progress 1ve t a x i n c i d e n c e d a t a , and ( 5)

using

1 5
Mli(Y) = C/Y * under R o b e r t ' s most p r o g r e s s i v e t a x i n c i d e n c e
assumptions."*^
and d i s t r i b u t i n g
goods,

By n o t r e l y i n g
the b e n e f i t s

of e x p e n d i t u r e s

f o r general

a range o f as s u mp t i o n s a b o u t i n d i v i d u a l

functions
allocation

is

retained.

o f general

incidence estim ates:
sive

on a s i n g l e means o f v a l u i n g

(pro-poor)

regressive

These f i v e

assumptions about the

goods b e n e f i t s

also y i e l d

Assu mp t i on 1 y i e l d s

results,

u tility

a range o f

t he most r e g r e s ­

and Assumption 4 y i e l d s

the 1east

res u l t s .

‘ ib id .,

p.

567.

13 1 b i d . , p .

561.

14

R o b e r t s , op. c i t . The c a l c u l a t i o n s are made by
assumi ng t h a t the product o f the margi nal u t i 1 i t y of p r i va te
income times the f a m i l y ' s share of general goods benef i ts i s
equal f o r a l l f a m i l i e s .
Thus, MU^( Y -) x E. = MUj (Y. ) x
E . , where
i s t he shar e o f gener a 1 1 go o d s 1 bene f j t s Jwh i c h
a c c r u e s t o each f a m i l y i n t he i th i ncome b r a c k e t , and Y-j i s
t he mean d i s p o s a b l e income i n t he i th i ncome b r a c k e t ; Aaron
and Mc Gui r e , o p . c i t . , p. 914.
A s i m p l e a r i t h m e t i c example w i l l ‘d e m o n s t r a t e t he
use of the M a i t a l f u n c t i on : assume t h er e a re two i ncome

The Problem o f Benefi ts i n Kind
The problem of the choice of u t i l i t y
partially
Malta],

but t h i s

of in - k in d

l e ad s

d ire ctly

At issue i s

t r a n s f e r payment s.

to e x p e n d i t u r e

t o a n o t h e r pr obl em o f
the value to b e n e f i c i a r i e s
The c o n v e n t i o n a l

r e c e i v e d by t he r e c i p i e n t s .

to t he benefi ts

G e n e r a l l y speaki ng, however9

d o l l a r amounts of cash and i n - k i n d benef i ts w i l l

be v a l u e d e q u a l l y by r e c i p i e n t s

payments.

not

because i n - k i n d b e n e f i t s

remove the e l e m e n t of choice i n v o l v e d

i n t he use of cash

Thus , t h e r e cou1d be a need to w e i g h t i n - k i n d
i n such a way as t o make them compar abl e t o cash

r ecei p t s .

15

The need f o r wei g h t i ng to c a l c u l a t e w e l f a r e -

equi v a l e n t cash t r a n s f e r s
i.e.,

approach

i n c i d e n c e has been t o assume t h a t t he costs

i n c u r r e d by the government were equal

benefits

1s

r e so l ve d by use o f the f u n c t i o n s p e c i f i e d by

valuing b e n e fits .

equal

f u nc t i o ns

the r a t i o

grams t o

woul d a r i s e

of the s u b j e c t i v e

taxpayer co s t,

if

benefi t w e i g h t s ,

benef i ts of i n - k i n d p r o ­

were n o t equal

to u n i t y .

b r a c k e t s w i t h two f a m i l i e s i n t he f i r s t b r a c k e t and t hr ee
f a m i 1i es i n the second b r a c k e t .
The mean i ncome i n the f i r s t
b r a c k e t i s $4 and t he mean income i n t h e second b r a c k e t is
$9.
Then, ( 1) C / 4 ^ * 5 x E-j = C/ 9^- ®
x E2 ; i f the t o t a 1 amount
o f g e n e r a l goods b e n e f i t s i s 10, t hen ( 2) 2E] + 3E2 = 10.
T he r e f o r e

= ||

and E2 = 3. 75 E]

Eg = 1 0 - 2E]s from ( 2) .

S o l v i n g f o r E-. a n d Eg y i e l d s
= .825 and E? = 2 . 7 8 3 ; t he
amounts o f g e n e r a l goods benef i ts accr ui ng t o each i ncome
br ac ke t are 1 . 6 5 and 8 . 3 4 9 .
15

Leanna S t i e f e l , M. Schmundt, and Eugene Smol ensky,
"When Do R e c i p i e n t s Val ue T r a n s f e r s a t T h e i r Costs t o T a x ­
payers?" i n I n t e g r a t i n g Income Ma i n t e n a n c e Programs, ed. by
I r e ne L ur i e (Madi son: I n s t i t u t e f o r Research on P o v e r t y ,
1974) .

The d i f f i c u l t y
siderable*
et a l .,

in me a s u r i n g b e n e f i t wei ghts i s con­

as evidenced by the p r e l i m i n a r y work o f S t i e f e l ,

and the value o f wei ghts i n a study such as t h i s is

doubtful.

The r e l a t i v e m a g n i t u d e of e x p e n d i t u r e programs

f o r w h i c h b e n e f i t wei ghts m i g h t be useful
small.

The focus o f t h i s study i s

o f spending*

o n l y one o f w h i c h

s i g n i f i c a n t amount (53 p e r c e n t )
fits

(medi cai d e x p e n d i t u r e )

i n t h i s study i s

on f i v e major c a t e g o r i es

(public welfare)

includes a

o f one o f t he i n - k i n d

bene­

d i s c u s s e d by S t i e f e l * e t a l .

The redi s t r i b u t i ve impact o f u s i n g w e l f a r e e q u i v a l e n t amounts
for this

s i n g l e c a t e g o r y , which comprises l ess than 4 p er c ent

o f t o t a 1 e x p e n d i t u r e s * woul d be m i n i m a l .
t he wor k by S t i e f e l *

Thus» i t

et a l . , is p a r t i c u l a r l y

seems t h a t

important in

national s t u d i e s where t he i m p a c t o f i n - k i n d programs i s
re la tive ly
weights

greater.

U ntil

can be c a l c u l a t e d

(and u n l e s s )
it

is

re lia b le

benefit

s u f f i c i e n t t o n o t e t h a t t he

assumpti on o f costs equa1 to benef i ts may i mpart a small
bias toward more r e d i s t r i b u t i o n

than may a c t u a l l y occur.

The Problem of Li f e t i me Income
Another c r i t i cism of convent i onal

i n c i dence s t u d i es

i s more f a r - r e a c h i ng than those discussed thus f a r .

All

of

these s t u d i e s have been undertaken on a c r o s s - s e c t i o n a 1
basi s and exami ned a one - ye ar p er i o d and a r r i ved a t r e s u l t s
f o r t h a t p e r i od .

The quest i on t h a t has been r a i s e d by

26
P ol i nsk y

1g

i s whether a o ne - ye ar s l i c e

per i od over which to measure f i seal

is t he r e l e v a n t

i nci dence .

Thi s problem

a r i s e s because c u r r e n t i ncome i s not a 1ways a good i ndi c a t o r
o f 1i f e t i me i ncome and because o f the di s t i n c t i o n between
17
the i nequal i t y of annual and 1 1 f e t i m e income.
Pol i n s k y p oi nt s out t h a t t he r e a r e t h r e e r e d i s t r i b u ­
t i ona1 e f f e c t s

o f a f i seal

st r u c t u r e .

One r e d i s t r i b u t e s

c u r r e n t i ncome among i ndi vi duals s anot her r e di s t r i b u t e s
1i f e t i me income among i n d i v i d u a l s , and t h e t h i r d r e d i s t r i butes income among d i f f e r e n t p e r i ods of an i n d i v i d u a l ' s
life .

18

Conventional

studies

have d e a l t w i t h

t he f i r s t

type

of r e di s t r i b ut i onal e f f e c t and t h e r e f o r e may be mi s 1eadi ng
wi th r e sp ec t t o the 1 ong-term e f f e c t s

o f the f i s c a l

systern.

Because the dis t r i b u t i o n o f i ncome depends , i n p a r t ,
on t h e age of t h e i ndi vi dua1s , a s tudy which f i n d s ,
exampl e,

t h a t a given f i s c a l

syst em i s

for

re d istrib u tive

to

1ow-income f a m i 1i es may m i s t a k e n l y be i n t e r p r e t e d as meani ng
tha t the f i s c a l

sys tern al s o i s

over the 1ong term.
those who are poor i n

r e di s t r i b u t i ve to poor people

The m i s t a k e could a r i s e

i f many of

the one - ye ar time per i od have 1i f e t i m e

i ncome s treams whi ch r i s e a f t e r

t h i s p e r i od.

Thus, the

^ A . M i t c h e l l P o l i n s k y , "A Note on the Measurement o f
I nci d e n c e , P u b l i c Fi nance Q u a r t e r l y , V o l . 1 (Apri 1 , 19 73 ) .
17I b i d .
1O
A. M i t c h e l l P o l i n s k y , " I m p e r f e c t C a p i t a l M a r k e t s ,
I n t e r t e m p o r a l Redi s t r i b ut i on and Progressi ve T a x a t i on"
( unpublished m a n u s c r i p t , May, 1 9 7 3 ) , p. 2.

27

r e s u l t would be t h a t t he f i s e a l

system r e d i s t r i b u t e s

to them in one per i od o nl y to r e d i s t r i b u t e
them in 1a t e r peri ods when t h e i r

income

income away from

incomes r i s e r e l a t i v e

to

others.
Data about t h e i m p a c t o f government programs on cross sectional

d i s t r i b u t i o n s o f income may not be r e l e v a n t i f

income p r o f i l e s
resulting

of i n d i v i d u a l s

change d r a m a t i c a l l y over t i m e ,

i n changes o f r e l a t i v e

distribution.

19

Rather,,

it

positions

in

t h e income

woul d seem t h a t t h e d i s t r i b u t i o n

of 1i f e t i me income s h o u l d be the measure a g a i n s t w h i c h the
incidence o f a f i s c a l

syst em s h o u l d be measured.

The p e r v a ­

s i v e n e s s and p e r s i s t e n c e of income i n e q u a l i t y make i t
a b l e t o know how t h e f i s c a l
i ncomes.

syst em r e d i s t r i b u t e s

The b i g g e s t pr o b l e m i n s a t i s f y i n g

this

desir-

life tim e
desire

is

t h e almost complete l a c k of d a t a f o r 1 i f e t i m e incomes f o r a
l ar ge sample of people over a long p er i od of ti me*
meantime3 i t

is

In the

im portant to recognize t h a t c r o s s - s e c tio n a l

st udi es pr ovi de only p a r t o f the data needed to an a l y z e the
impact of a f i s c a l

syst em on the d i s t r i b u t i o n

o f income.

They cannot show, on the basis o f e x i s t i n g e v i d e n c e , t h a t
when a f i s c a l

system i s

found to be r e g r e s s i v e ,

20

this

1Q
Pol i nsky, "A N o t e , " op. c i t . , p. 227.
He c i t e s
evidence which supports the hypothesi s of c o n s i d e r a b l e
movement between income c l a s s e s .
20

As they are
used in the l i t e r a t u r e s the terms
regress i ve and p r o g r e s s i v e can be confus i n g .
To avoid con­
f u s i o n i n t h i s s t u d y , t h e i r usage w i l l be c o n s i s t e n t wi t h
t h a t of tax i ncidence s t u d i es , i . e . 9 r e g r e s s i ve i mp l i e s
t h a t the i ncidence of expendi t ur es as a p r o p o r t i o n of
income d e c l i n e s as income r i s e s .

28
i m p l i e s a fundamental
the c o n t r a r y :

r e d i s t r i b u t i o n o f income.

a 1 though r e d i s t r i b u t i o n

Qui te to

has o c c u r r e d , i t may

have been from those t e m p o r a r i l y w e a l t h y to those t e m p o r a r i l y
p o o r , and t h i s

does not t e l l

us what i s happening to concen-

t r a t i ons of e i t h e r p o v e r t y o r i ncome.
The I d e n t i t y o f Benefi t s and Costs
In a d d i t i o n

t o t he pr obl ems o f v a 1ui ng i n - k i n d bene­

f i t s , t h e r e a re o t h e r c o n s i d e r a t i o n s wh i ch make t he assump­
tion

of

the

is

first

o f c o s t s and b e n e f i t s

identity

that,

as B i r d and DeWulf

21

t en u o u s .

poin t out,

be wei gh t e d by t he degree o f i n v o l v e m e n t i n
maki ng p r o c e s s

w ill

t he o u t p u t s more h i g h l y

value

to c o i n c i d e w i t h

more l i k e l y
those

not

ested i n
if

the

loses

by r e c i p i e n t g r o u p s .

involved

in

political
as a r e s u l t

process

because t he s e r v i c e s
of this

be l e s s

expenditures.

22

P a re to-e fficient,

is

o f the programs,

and p r o b a b l y w i l l

t h an c o s t s ,

t he d e c i s i o n ­

t he p r e f e r e n c e s

public

b e n e f i t s may

Those most i n v o l v e d

decision-making w i l l

t h e pa c k ag e o f

l o s e i ncome.
n

|

c B i r d and DeWul f ,
op.

cit .
2 2 1b i d . ,

p.

47.

is

in te r-

so t h a t no one

benefits w i l l

be no l e s s

ut i 1i t y

found t h a t r e d i s t r i b u t i v e

losses o f u t i l i t y

Thi s r e s u l t

group;

e x c eed c o s t s .

Hocmnan and Rodgers

programs may n o t i n v o l v e

are

Secondly,

By ass umi nq i n t e r d e p e n d e n c e o f i ndi vi dual
functions,

The

possible

Fiscal

if

f r om p e op l e who

t he u t i l i t y

I nc i de nc e S t u d i e s ,

of

29
income i s r e pl a ce d by the u t i l i t y

of g i v i n g or of f e e l i ng

b e t t e r o f f because those who r e c e i ved r e di s t r i b u t i on of
23

income are b e t t e r o f f .

These c o n s i d e r a t i o n s c a s t doubt on the i d e n t i t y
the cos ts and benef i t s , or the account i ng appr oach.

of

None

of the convent i ona1 e x p e n d i t u r e i nc i dence st u d i e s has used
a n y t h i n g o t h e r than the accounti ng approach , but Neenan has
used a model

in which b e n e f i t s

on i n t r a - m e t r o p o l i t an f i s c a l
To a c c o u n t f o r
exceed c o s t s

is

exceeded cos ts in hi s work

i nci dence.

t he p o s s i b i l i t y

a d iffic u lt

24
t h a t b e n e f i t s may

task, especially

o f t he l a c k o f agr eement on b e n e f i c i a r y
o f general

the a l l o c a t i o n

method a d j u s t e d b e n e f i t s
medi an

i ncome

The b a s i c

in

goods e x p e n d i t u r e s .
to suburbanites

underlying

in itia lly

lic

i ncomes

services,

rise

this

and

Neenan' s

by the ra t i o o f

method i s

t he c i t y .

t h a t t he val ue

measured by c o s t can be a d j u s t e d by a

" w i l l i n g n e s s to pay m u l t i p l i e r . "
t h a t as

id e n tific a tio n

t he suburbs t o median income i n

assumption

of benefits

in t he l i g h t

25

"

Thus , Neenan assumes

p e op l e ar e more w i l l i n g

and t h i s

w illingness

t o pay f o r pub­

t o pay can be used t o

VU 1ii e b e P 6 1 i z, s .

/" JMa ro 1d Hochrnan and James Rodgers, " Par et o- Opt i mal
R e d i s t r i b u t i o n , , " Amer i can Economic Review, Vol . 59 (September,
1 959) , pp. 5 4 2 - 5 5 7 I
24

Neenan, o p . c i t .

2 5 i b l d . , p.

25.

30
Ne e n a n
of

voting

tion.
above

c i tes

behavior

The

the

to

general

e v i dence

support

pub 1 i c

services
In

his

conclus ion

some mi ni mum i n c o m e
is

of

a rising

N e e n a n 1s s t u d y
an d

the

m ultipiiers

on

the

basi s o f

the

di f f e r e n c e

cedure

in

the

this

choice

technique

of
is

study
which

based

and

the

the

assumption

There

income

is

would

to

in

use

willingness

of

benefits

state

in itia lly

value

of

benefits

tent,

in

this

ently

than s p e c i f i c

study,

than

Malta!

examined

and

specified

adopt

thei r

a

require

to

their

u tility

methodology

26I b i d . ,

p.

22.

2 7 1b i d . ,

p.

25.

a re

tax

at

their

their
costs.

general

benefits

Since

function,

It
goods

which

assumption

rather

costs

it

than

of

tax

assump-

Finally,
adjust
means
would

Neenan'

the
that

be

the

be

d iffe r­
valued

and M c G u i r e
to

preferable

N e e n a n 1s .

v a 1 ue

inconsis

benefi ts

w illingness

s eems

on

system.

may a l s o

Aaron

group,

largely

an a n a 1o g o u s

to

a

incidence,

for

m ultiplier

in

Neenan' s

study,

pay

used

income

based

system.

is

N e e n a n 1s p r o ­

local

tax

for

caIculated

Further,
local

that,

pay

i ncome

a reference

is

assump­

26

the

costs.

the

to

in

value

goods

pay

D etroit

Using

about

s t u d i es

s t u d i es was

median

27

assumption

valued

to

in

suburbs

D etroit.

local

exceeds

differently
have

pay

and

to

i ncome.

be a r b i t r a r y .

this

the

the

for

between

regressivity

no b a s i s ,

three

income

on a s s u m p t i o n s

t i on a b o u t
of

in

would

willingness
of

the

median

base

median

empirical

w illingness

f u n c t i on o f

the

and

three

t h r e s ho id , w i 11i ngness

as

suburb

of

and
pay
to

31
Su mma r y a n d M e t h o d o l o g y

Taken
delineate
tional

as

the

a group,

most

serious

f is c a 1 incidence

th is e v i d e n c e
studies

as

is

are

to

make

comings.

To

remaining

s ho r t c o m i ngs

and

DeWu' f f

stated

mo r e

results
the

present

state

of

such

that

proper

is

mor e

the

art."

state

of

the

art

be g e n e r a t e d

for

the

dents.

Th e

general

light

s tudy

on

1i f e t i m e

equilibrium

reduces

.

.

short­

the

and,

as

Bird

[should]

humili t y ,

of

cannot
shed

the

as

and

be
the

b e fi ts

28

be

which

.

to

conventional

convincingly

and

can

study,

conven­

possibles,

assumptions

caution

in

elim inate

not

s h o r t c o m i ngs

and

of

far

thus

response

be made e x p l i c i t

the

mo r e

to

all

exist,

state-level

this

and a r g u e d

wi t h

inherent

The

attempts

that

" . . .

The p r e s e n t
not

in

discussed

m odifications

should

e xp licitly

displayed

1i m it a t io n s

such

degree

advise,

criticism s

studies.

possible

the

the

fiscal

incidence

removed.

Data

purpose

incomes

problem

s u f f i cien t l y

of

of

not

this

Michigan

remains,
the

do

bias

is

resi-

although
this

a

problem

introduces.
The
resolved,

c h o i ce o f

but

u tility

demonstrating

various

assumptions

about

for

purposes

this

the

weights

of

precludes

benefi t s , al though
so

small

as

to

the

variables

study.

Lack
of

magni t u d e

introduce

only

also

s ens i t i v i t y

these

a resolution
the

functions

the
of

of

remains
of

this

a minimal

results

should
r e l i able

problem
type
bias.

to

be
to

be a d e q u a t e
benefi t

of

in-kind

of

benefi t

is

32
In s p i t e of the l i m i t a t i o n s
those which remain in t h i s

o f previ ous s t u d i e s and

s t u d y , t h e r e i s a need in

Mi chi gan f o r i n f o r m a t i o n about the i n c i d e n c e o f t he p u b l i c
sector.

The companion t ax i nci dence study now under way

( the Roberts r e s e a r c h ) , in combi nati on wi th t h i s
provi de t h i s i nforma t i o n .

study, w i l l

But the e x i s t e n c e o f the tax

s tudy has been an i nf 1 uence on the 1 imi ts and

•incidence

di r e c t i on o f t h i s s tudy because of the need to a r r i ve a t
compatible

estimates

objectives

the

of i n c i d e n c e .

definition

and

the

In order to a c h i e v e
distribution

of

thi s

income

in

19 70 d e v e l o p e d and used by Roberts i n his study
29
of t a x i n c i d e n c e
has b e e n adopted f o r use i n t h i s s t u d y .

Michigan

in

A discussion
of

of t h i s

payments i s

transfer

Because
lies

in

di s t r i but i on and the di s t r i b u t i on

income

the s u b j e c t o f Chapter I V .

a p a r t o f the importance of t h i s

i ts r e l a t i o n s h i p

to and compati b i 1i t y w i t h the

Roberts st udy,

it

of t h e v a r i o u s

expenditures.

program

is

is

dissertation

necessary to di chotomi ze the analyses
The impact of each expendi t u r e

e v a l u a t e d using both convent i onal

and r a d i c a l

a s s limp t i ons .

The c o n v e n t i o n a l

techni ques

i nc l u d e f i v e assumpti ons

distribution

o f general

goods e x p e n d i t u r e s .

A l l o c a t i o n of the b e n e f i t s

o f general

goods expendi tu res is

regarding

made

in

the

f i ve ways: on an equal

per f a m i l y b a s i s ,

by a dj us t ed broad income, one- ha 1f by a d j u s t e d broad income

29

Rober t s,

op. c l t .

33
and o n e - h a l f by f a m i l i e s ,
recommended by Mai t a l
i nci dence r e s u l t s
methods w i l l

and us i ng the u t i l i t y

(MU(Y) = C/Y

f u n c t i on

) under the two t ax

from R o b e r t s ' study.

Using t hese f i ve

demonstrate the sensi t i v i ty of the res u l t s

the vari ous assumpt i ons; pr evi ous st udi es t y p i c a l l y
only one or more of the f i r s t

t h r e e methods,

to

used

In a d d i t i o n ,

vari ous p r o p o r t i o n s of the genera 1 goods component of
expendi t ur es

f o r s p e c i f i c goods are a l 1ocated us i ng the

same f i ve a l l o c a t i v e

procedures

1 i sted above.

Many o f the 1i mi ta t i ons o f the conventi onal
are

either

in m a r k e d l y
sections
level

u n r e s o l v a b l e in t hi s s tudy or u n i i kel y to r e s u l t
biased r e s u l t s , as the di scussi on i n p r e v i ous

indicates.

studies,

methodology
results

of

approach

in

it

is useful

this

sim ilar

Further,

si nee t her e are o t h e r s t a t e -

to employ the conventi ona1

study f o r the purpose of compari ng the
studies.

CHAPTER I I I
THE RADICAL CRITIQUE AND A PROPOSED
RADICAL ANALYSIS

The c r i t i c i s m s
cussed i n

the p r e v i o u s

economists

worki ng i n

11 is i m p o r t a n t

o f s t udi es o f f i s c a l

i nci dence d i s ­

c h a pt e r have been l e v i e d by
the neo cl as si ca 1 economi c t r a d i t i o n .

to r e a 1 i z e , however,

mists who r e j e c t the neocl assi cal

t h a t t h er e ar e econo­

paradigm and who e l a b o r a t e

on and extend the a n a l y s i s and c r i t i cism o f c a p i t a l i s m by
Karl

Modern radi ca1s are c r i t i cal

Marx.

not onl y of

advanced capi t a l i sm but al so o f convent i onal
analyses.

A f undament al , a 1 though t a c i t ass umpti on i n con­

venti ona 1 i nci dence st udi es
limits

certain
specific

i s tha t the S t a t e act s w i t h i n

to perform f u n c t i ons which b enef i t ei t h e r

groups

w i t h i n s oci et y or ben ef i t a l 1 members of

society.

The n e o c l a s s i c a l

has

been questi oned in any convent i onal

never

dence s t u d y .
tional

neoclassical

The

st udi es is

t heor y of the r o l e o f the Sta te

i m p l i c a t i o n of t h i s
t h a t even i f

34

inci­

procedure f o r conven­

the a n a l y t i cal

the st u d i e s are c o r r e c t , the s t u d i e s

fiscal

procedures in

themselves may be

35

flawed because t h e i r assumption about t he r o l e o f the S t a t e
is open to ser i ous c r i c i s m J
The purpose o f t h i s
n a t i v e to the convent i onal
This a l t e r n a t i v e
of the r o l e

of the S t a t e .

an

of

the

based

State
on

because

a nd
of

of

Crisis
benefi t
of

recipients

bring

together

it

us ed

is

f o r expendi t u r e i nc i d e nc e
The n a t u r e

of

analysis

d e p a r t u r e from the convent i onal

importance of James 0 ' Connor' s The Fi s ca l

the S t at e

this ch apter.

a model

r e c i p i ents r e c e i v e s a c a r e f u l

significant
The

o f the

an a n a l y s i s of the r o l e

t h e o r y about the S t a t e ,

benefit

assumptions.

e x p e n d i t u r e bene­

society.

an d develops

the

to d i s t r i b u t e

begins w i t h

chapter

a radical

benefits

studies,

e x p l i c i t discuss i on of the r o l e

State i n a c a p i t a l i s t
This

Unlike conventional

framework developed in t h i s c h a p t e r ,

and used in l a t e r chapters
includes

analysis of expenditure incidence.

is based on a r a d i c a l , n e o - M a r x i st t heor y

however, the r a d i c a l

f i ts ,

c ha pt e r i s to propose an a l t e r -

2

for the

is

identification

al so discussed in a s e p a r a t e s e c t i o n

A met hodol ogi cal

the

i n later

of b enef i ts and

structure

s ummary i s

of the r a d i cal

i nc 1 uded to

analys i s as

chapters.

’ Pa u l S w e e z y , The T h e o r y o f Capi t a 1i s t Development
(New Y o r k :
M o d e r n Reader , 1 9 4 2 ; , Chapter 13, e s p e c i a 1l y
pp. 2 4 0 - 2 4 4 .

2

James 0 1Connor, The F i s c a l C r i s i s o f the S t at e
(New York:
S t . M a r t i n ' s P r e s s , 19 7 3 j -

36
The Role of the S t a t e
The assumption i n convent i onal
st udi es which i s

s u b j e c t to c r i t i c i s m

most

by which the b e n e f i c i a r i e s

procedure

tures ar e i d e n t i f i e d .
is

expenditure incidence

o f government e x p e n d i ­

The benef i t s - r e c e i v e d concept a s i t

used i n c o n v e n t i o n a 1 s t u d i e s r e s t s s o l i d l y

unquestioned

of the l i b e r a l

assumption

of the S t a t e i n a capi t a l i s t
essentially
private

ef f i ci ently

distribution

private

sys tern.

the

markets;

of

to

interferences

ideology,

(3)

to s t a b i l i z e

in

the

to a l 1 o cat e
to a l t e r

from the f or ces of

the p r i v a t e market

by

f u n c t i ons are j u s t i f i e d , i n the l i b e r a l
the

assumpti on t h a t

ac t i o n of a r e p r e s e n t a t i v e
and

acts

Individuals

enter i n t o

to

accomplish

able

or

mo r e

costly

the S t a t e » through the

democracy , r e pr e s e n t s

“ to advance the

wish

interests

goals
than

which
acting

would

"Musgrave,

4
An U r b a n

i ndi vidua 1

of al 1 i n d i v i d u a l s . " ^

col 1e c t i ve r e l a t i o n s h i p s
otherwise

individually.^

q

p.

(1)

among p r i v a t e m a r k e t s ; ( 2 )
which r e s u l t s

t heor y

This

3
These

wishes

economi c system.

government

income

and

upon the

t heor y of t he r o l e

economy f o r t hr e e purposes:

market

resources
the

lim its

the

involves

because they
be u n a t t a i n ­

Buchanan and
- ..

op.

c i t . s p.

.

5.

David Gordon , e d . , P r o b l e m s i n
Per spect i ve ( L e x i n g t o n , M a s s . :

Pol i t i c a 1 Economy:
D . C . Heath , 1 9 7 1 ) ,

10.

^James M. Buchanan and Gordon T u l 1 o c k , The Calculus
of Consent (Ann A r b o r : The U n i v e r s i t y o f Michigan P r e s s ,
1 9 6 2 ) , p- 1 3 .

37

Tu 1 lock view c o l l e c t i v e a c t i o n as " . . .

a genui nel y

c o - o p e r a t i v e endeavor in which a l 1 p a r t i e s , c o n c e p t u a l l y ,
stand to g a i n . "

6

This model

is analogous to t he model o f

competi t i ve markets i n which each i ndi v i d u a l
or her own s e l f - i n t e r e s t .
model,

If office

seek to m a x i m i z e t h e i r

constituency.
reflect

7

ho 1ders , I n

this

support among v o t e r s they

propose programs whi ch s a t i s f y

w ill

pursues his

a m ajority

The budgetary r e s u l t s o f t h i s

of thei r
process should

the a t t i tudes of the c i t i z e n r y .
In

the

conventional

a n a l y s i s s the

State

Is

mediator

among v a r i ous i n t e r e s t s and cl asses , and does not r e p r e ­
sent any s i n g l e i n t e r e s t
the

assumption

approach i s

or cl ass i n

underlying

the

society.

conventional

Thus»

benefits-received

t h a t al though some government expendi t u r es ar e

undertaken f o r

hoc purposes to b e n e f i t s p e c i f i c groups

aj i

of p e o p l e 5 e . g . ,

t r a n s f e r payments, many expendi t u r es ar e

undertaken f o r the benefi t of a l l
transfer

the

segments o f s o c i e t y .

Even

payments y i e l d r e d i s t r i b u t i ve e f f e c t s which ar e in

accord w i t h

the s o c i a l w e l f a r e f u n c t i on of the soci e t y .

Radicals

on the ot her hand, c o n t e n t t h a t the p i u r a l erroneous and t h a t the S t a t e and the

istic

assumption

is

whole

o f soci et y a r e

in

f a c t di r e c t l y or i n d i r e c t l y con­

t r o l 1ed by a r u l i n g cl ass comprised p r i m a r i l y of capi t a l i s t s .
While t h e r e i s
6Ibid.,

no s i n g l e r a di c a 1 t heor y o f the r o l e of the
p.

266.

7 1b i d . , p.

241.

38
State i n a c a p i t a l i s t
Marxist

agreement among

of the S t a t e i s

was descri bed by Marx and Engels i n

Communist M a n i f e s t o ;
is

there i s

t h e o r i s ts t h a t the r o l e

than i t

plex

system,

more com­
the

"The e x e c u t i v e o f the modern s t a t e

but a commi t t e e f o r managi ng the common a f f a i r s of the
O

whole

bourgeoisie."

11 i s
and e x p l a i n
have

1a t e d

by M a r x .

The

arisen
9

from
Wh a t

the
is

functions

points

which

of

general

s t u d y , to an a l y z e

about

agreement

the S t a t e

serve

society

(capitalists)

and ( 2 )

however,

center
(1)

around

the

agree­

two

related

The S t a t e must

domi na nt cl ass
it

is

formu-

the r o 1e o f the S t a t e .

performs:

the needs of t h e

broadly

characteristics

important,

among modern M a r x i s t s
essential

for this

of the ma n y t h e o r i es about the S t a t e

each

which

me n t

not i m p o r t a n t ,

in

the

must seem to be

8

K a r l M a r x a n d F r e d r i c k E n g e l s , " T h e C o m m u n i s t Ma n i
f e s t o , " i n The C a p i t a l i s t S y s t e m , e d . b y R i c h a r d C . E d w a r d s
Mi c h a e l R e i c h a n d Thomas E . W e i s s k o p f ( E n g l e w o o d C l i f f s ,
New J e r s e y :
P r e n t i c e - H a 11, 1972) , p. 68.
9

S e e , f o r e x a m p l e , D a v i d G o l d , C l a r e n c e Lo and J o h n
M o l l e n k o p f , " Some R e c e n t D e v e l o p m e n t s i n t h e M a r x i s t T h e o r y
o f t h e S t a t e " (a p a p e r p r e s e n t e d a t t h e w i n t e r c o n f e r e n c e
o f t h e U n i o n f o r R a d i c a l P o l i t i c a l Ec o n omy , December 30,
1 9 7 4 ) ; R a l p h M i l i b a n d , The S t a t e i n C a p i t a 1 i s t S o c i e t y ( New
Yo r k :
B a s i c B o o k s , 1969)1 see a l s o t h e d e b a t e bet ween
M i l l b a n d a nd N i c o s P o u l a n t z a s i n I d e o l o g y i n S o c i a l Sc i e n c e
e d . by Robi n B l a c k b u r n ( New Y o r k :
Vi n t a g e B o o k s , 197371
p p . 2 3 8 - 2 6 2 ; a n d Mi 1 i b a n d , " P o u l a n t z a s a n d t h e C a p i t a l i s t
S t a t e , " New L e f t R e v i e w , No. 82 ( N o v e m b e r / D e c e m b e r 1 9 7 3 ) ;
o t h e r a r t i c l e s o f i n t e r e s t a r e Amy B e t h B r i d g e s , " N i c o s
P o u l a n t z a s and t h e M a r x i s t T h e o r y o f t h e S t a t e , " P o l i t i c s
and S o c i e t y , V o l . 4 ( W i n t e r 1 9 7 4 ) , p p . 1 6 1 - 1 9 0 ; a n d A l a n
W o l f e , " New Di r e c t i o n s i n t h e M a r x i s t T h e o r y o f P o l i t i c s , "
i n t h e same i s s u e o f P o l i t i cs a n d S o c i e t y .

39
representative of a l l

cl asses i n the s o c i e t y because the

soci e t y i s o s t e n s i b l y d e m o c r a t i c a l l y

organi z e d .

As W o l f e and Bri dges ma k e cl e a r , the i dea of the
S t at e as si mpl y the i ns t r u me n t of the dominant cl ass i s
too s i m p l i s t i c

because i t

i gnores the hi s t o r i cal d ev el op10
me n t of the S t a t e and the o r i g i n s o f i ts power.
The
o r i g i n of S t a t e

power * accordi ng to Bridges s is t w o f o l d :

popular s u p p o r t and i ts commi tment to capi t a 1i s t i n t er es t s .
Thus,

the

struggle

development
among

class

of t h e c a p i t a l i s t

of

the

State

interests,

has

and

been

the c o n t i n u e d

S t a t e depends on i ts a b i l i t y

accumulati ve d e ma n d s of capi t a l i sts w h i l e
disguising
s e n t a t i ve.

role

Thi s

latter

performs c e r t a i n
benefit

existence

repre-

need gi ves r i s e to the l e g i t i m i z a ­
f u n c t i o n o f the S t a t e wi t h o u t which

S t a t e seems to be l e g i t i m a t e

Th e

the

a t the same ti me

could n o t command support from the m a j o r i t y

p opul a ce.

of

to meet the

by seeming to be u n i v e r s a l l y

( or l e g i t i m a t i o n )

tion
it

this

a result

11

functions

to s t a b i l i z e

o f the

becaus e i t

the economy and to

cl asses o t he r than capi t a l i s ts , thereby ens ur i ng

i ts l e g i t i m a c y .

Wolfe

the p r a c t i c e ,

roles

as

i.e.,

the S t a t e

descri bes

t h i s c o n t r a d i c t i o n of

by the S t a t e ,

of "a 1i e n a t e d p o l i t i c s , "

d e r i ves i ts power from the dominated m a j o r i t y
1p
t h i s power on beha1f o f the domi nant cl ass :

and

exer ci s e s

pp.

^W olfe,
177-178.
•| i

op. c i t . , p.

Bridges,

^W olfe,

o p . ci t . ,

op . ci t . ,

p.

148 f f ; Bri dges , op . c i t . ,
p.

178.

148.

40

the S t a t e "must s i mu l t a n e o u s l y be a cl a s s s t a t e and a
u ni v e r s a l
latter

state,

whi ch i t

in some f a l s e way. "

can onl y do by c l a i m i n g the
13

A capi t a 1i s t Sta t e depends f o r i ts power to perf orm
i ts f u n c t i ons on g e n e r a t i ng revenue from w a g e s and p r o f i t s , so
it

must serve the accumul at i on needs o f c a p i t a l i s t s .

St at e serves the i n t e r e s t s
It

ways:
only

to

directly

me mb e r s

c a p i t a 1 i s ts

of

the

of the capi t a 1i s t c l as s i n

t h a t cl ass

aids

The

class,"

and

two

"by p r o v i d i n g

services

it

supports

indirectly

"by hel pi ng to pr e s e r v e the system o f i ns t i t u -

t i ons which

support and m a i n t a i n

But i t

al so be aware o f and responsi ve to the demands

of

must

domi na ted c l a s s e s , wi t h ou t w h o s e

would 1ose i ts 1egi t i macy.
under capi t a l i sm i s
from
are

their
also

The organi za t i on o f p r o d u c t i on

work and the products of t h e i r

labor,,

alienated

but t hey

economi c i nsecuri t i e s , such as unemploy-

are not t y p i c a 1l y vi s i ted upon members o f the

capi t a 1 i s t c l a s s .
policies

1A

support t he S t a t e

s uch tha t not only ar e w o r k e r s

s u b j e c t to

men t , which

its

the power o f tha t c l a s s . "

The S t a t e must, t h e r e f o r e , i ns ure t h a t

seem b a lanced

among c l a s s e s .

The precedi ng di s c u s s i o n admi t t e d l y

i gnor es impor­

t ant aspects of the v a r i ous t h e o r i es o f the S t a t e .

It

is

s u f f i c i en t f o r the purposes of t h i s s t u d y , however, because
the basi c elements of the t heor y demons t r a t e
131bi d . ,
^Gordon,

p.

149.

op.

c i t . , p.

6.

the d e p a r t u r e

41

from the co n v e nt i on a l
a n a l y t i cal
effects

t h e o r y o f the S t a t e and p r o v i d e an

framework i n w h i c h

to r econsi der the i nci dence

on income o f S t a t e a c t i o n s ,

0' Connor1s w o r k w i l l

The di s c u s s i o n of

1 end addi t i onal

insight i n t o

the two

basi c f u n c t i ons o f the S t a t e .
There a r e

" i n s i d i o u s pol i t i cal

using the co n ve nt i on a l

benefits-received„or costs-incurred-

o n - b e h a l f - o f , concept of e x p e n d i t u r e
it

deni es t h a t the S t a t e p l a y s

class

conflict

threats

and

might

endanger

tures

are

if

face,

an i mp o r t a n t r o l e i n
and c a p i t a l i s t s

The Sta te act s

in

the

a

to defuse p o l i t i cal

to a m e l i o r a t e c o n f 1i c t
the s y s t e m . ^

between cl asses whi ch

For examp 1e , wel f a r e expendi -

commonly consi dered to b e n e f i t poor p e o p l e .
this

On

seems to be a r e as ona bl e propos i t i on .

some people a r e

But,

poor because of the socioeconomic systern,

w e l f a r e payments a c t to c o - o p t t h e i r anger a g a i n s t

and

if

the

system,

the

poor?
I5

author

d i s t r i b u t i o n because

a g a i n s t the systern by workers and the surpl us

population

its

between w o r k e r s

economy.

capitalist

in

im plicatio n s"^

is

can the w e l f a r e

sys tern be sai d to benef i t o n l y

T h i s p h r a s e was u s e d by Mi t c h e l 1 Stengel
i n d e b t e d t o hi m f o r
the s ugges t i on .

and

t he

1&
Richard Edwards and A r t h u r MacEwan, "A Radi cal
A p p r o a c h to Economi c s , " in Gordon, op . ci t . , pp. 2 0 - 2 1 .

42
Stephan Mi chelson has s p e c i f i c a l l y a p p l i ed a r a di cal
view to f i s c a l

incidence studies .

1 7

E s s e n t i a l l y , Mi chelson

has sai d t h a t t h e r e i s much more to the impact of gover n­
ments than t h e i r t a x and expendi t u r e p o l i c i e s .
Mi chelson a d v i s e s ,

al s o should exami ne the i mpact of o t he r

government p o l i ci es and a c t i o n s .
S t a t e , however, i s

Re s e a r c h e r s ,

The l i b e r a l

view o f the

unsat i s f a c t o r y f o r t h i s purpose because,

accordi ng to Mi chelson „
What good i s an ana l y s i s o f government a c t i o n i n
a c a p i t a l i s t syst em wh i c h i gnores how c a p i t a l i s t
gover nment s act ?
I f , i n f a c t peop1e a t t a i n an
i ncome c l a s s t hr o ugh governmen t a c t i o n , and the
gover nment ma i n t a i n s them i n t h a t r e l a t i ve i f not
a b s o l u t e c l a s s , s h o u l d n ' t the measur ement of the
e f f e c t o f t h e government on i ncome dis t r i b u t i o n
c o u n t t h a t f a c t ? 18
Mi che'l s on goes on t o s u g g e s t t h a t t h e d i s t r i b u t i o n
income t h a t r e s u l t s

from government p o l i c i e s

par ed not to t h e same u n d e r l y i ng d i s t r i b u t i o n
t r i b u t i o n which wou1 d o b t a i n e i t h e r
policies,

in

or under di f f e r e n t p o l i c i e s ,

of

should be com­
but to a d i s ­

the absence o f these
o r, preferably,

under a di f f e r e n t socioeconomi c sys tern e n t i r e l y .
There wo ul d seem to be two ways to c o r r e c t t h i s
possible

fault

o f c o n v e nt i on a l

studies.

One is to hypot he-

s i z e a di s t r i b u t i on o f i ncome t h a t would exi s t under what
a per son c o n s i d e r s

" the good s o c i e t y , "

to borrow Mi c h e l s o n 1s

phr ase, and compare the hypot hesi zed di s t r i b u t i on w i t h the
17

St ephan Mi c h e l s o n , "The Economics o f Real Income
D i s t r i b u t i o n , " Review o f Radi cal P o l i t i c a l Economi c s , V o l .
2 ( S p r i n g , 1 9 7 0 ) , pp. 7 5 - 8 6 .
18Ib id .

, p.

77.

43
exi s t i ng Income d i s t r i b u t i o n .

However, t h e r e i s probabl y

a broad spectrum o f income d t s t r i b u t i o n s
ent peopl e.

d e s i r e d by d i f f e r ­

The r e s u l t o f such an i nqui r y » t h e r e f o r e ,

would be s e v e r a l

studies of f i s c a l

i nci dence, the co n cl u ­

sions o f which would not be compat i bl e because of the
varyi ng o r i g i n a l , " i d e a l . , "

i ncome d i s t r i b u t i o n s .

The choice of a basi c income d i s t r i b u t i o n
Mi c h e l s o n ' s "good s o c i e t y "
study such as t h i s .
s t a t e and l oc a l

It

c r i t e r i on is di f f i c u l t in a

has a l r e a d y been suggested t h a t

l e v e l s o f government ar e less i n f l u e n t i a l

than the f e d e r a l

government in determi ni ng the di s t r i b u t i on

of income w i t h i n a s i n g l e s t a t e .
therefore,

to meet

I t would be i n a p p r o p r i a t e ,

to assume an income d i s t r i b u t i o n w i t h i n Mi chi gan

vastly d i f f e r e n t

from t h a t which e x i s t s .

Another a l t e r n a t i ve is to a t t e mp t to q u a n t i f y

the

impact of vari ous government p o l i c i e s on the d i s t r i b u t i o n
i ncome.

Of course,

quest i ons,

this

ra i ses very d i f f i c u l t conceptual

such as a t t e m p t i ng to measure the e f f e c t o f t he

exi st ence of the Department of Defense on i t s

present seale

or the impact o f the pervasi ve i n f l u e n c e of 1 a r g e - s c a l e
monopol y corpora t i ons„
legal

F u r t h e r , what ar e the e f f e c t s

of

p r o t e c t i o n s o f p r i vate p r o p e r t y , especi a 1 l y as they

p e r t a i n to the r i g h t s of co r p o r a t i o ns ?
type o f a n a l y s i s

It

seems t h a t t h i s

i nv ol v e s so many de b a t a bl e i ssues t h a t i t

is uni i ke l y to answer the c r i t i ci sm of f i s c a l
studies.

of

What i s

i m p o r t a n t , howevers i s

i nc i d e n c e

the r e c o g n i t i o n

t h a t f i s e a 1 i n c i d e n c e i n a narrow sense i s not the sol e

44
impact of governments on the d i s t r i b u t i o n
fact, it

o f income;

in

may not be even the pri mary i n f l u e n c e .
The proposed r a d i c a l

a n a l y s i s , however, i s

designed

to meet ,

i n p a r t , Mi che1son‘ s f i r s t c r i t i c i s m o f c o nve nt i ona l

studies:

t h a t they i gnor e how the government act s to ma i n -

t a i n the exi s t i ng i ncome di s t r i but i on by s u pp or t i ng the
c l a s s syst em and i n s t i t u t i ons o f c a p i t a l i s m .
i s preci s e l y what t h e radi cal

Thi s q ue s t i on

a n a l y s i s a ttempts

to answer

by e x a mi n i ng t h e r o l e o f t he S t a t e i n e x p e n d i t u r e i n c i d e n c e .
Thus, f r o m a r a d i c a l
to i d e n t i f y

t ho s e who a c t u a l l y

government e x p e n d i t u r e s .
assume t h a t
recipients
payment s i s

perspective i t

11

is

r e c e i v e t he b e n e f i t s

is

incorrect,

of

f o r examp 1 e , to

t r a n s f e r payment s b e n e f i t o n l y t h e d i r e c t
o f t he payments i f

t he r e a l

purpose o f these

t o suppr es s o r d i m i n i s h c l a s s c o n f l i c t .

t he u l t i ma t e b e n e f i c i a r y
un d e r t a k e n f o r t h i s

t he c o n v e n t i o n a l
expenditures.
as s u mpt i o n i s

Rather,

of a t l e a s t p a r t o f expendi t ures

purpose i s

the c a p i t a l i s t c l a s s .

exampl e of the di f f e r e n c e between a r a di cal
techni que i s

Another

a n a l y s i s and

the t re a t me n t o f educat i on

The most wi d e l y used conventi onal
t h a t t he f a m i l i e s

i nc i d e n c e

of s t u d e n t s a r e t h o s e on

whose beha 1 f the expendi t ures are u n d e r t a k e n .
hand,

necessary

On the o t h e r

a ra di c a 1 analys i s woul d a l 1 ocate some f r a c t i on o f

t hese e x p e n d i t u r e s

to c a p i t a l i s t s

because o f the e x t e n t to

whi ch t he educa t i ona 1 syst em is des i gned to meet the needs
of monopoly capi t a l

f o r workers w i t h s p e c i f i c knowl edge and

the soci a l i z a t i on necessary to f u n c t i on in the c a p i t a l i s t
soci e t y .

45

The Fisea 1 C r i s i s
11

o f the S t a t e

i s a p p r o p r i a t e a t t h i s p o i n t to discuss the

implications

f o r t h i s s t u d y o f the p i o n e e r i n g work o f

James 0 ' Connor.

19

0 ' Connor has made more speci f i c the

r a d i c a 1 t h e o r y o f the S t a t e by devel opi ng a t heor y of the
budgeta ry process o f the capi t a 1i s t S t a t e i n
study i s
level

designed to i d e n t i f y

Hi s

the d e t e r m i n a n t s o f the

and composi t i on o f government bu dg et s

0 'Connor i d e n t i f i e s

the U.S.

in t h i s

t h r e e d i s t i n c t di vi si ons i n

the monopo l y , competi t i ve and S t a t e s e c t o r s .
he discusses f i v e c l i e n t groups o f the S t a t e ;

country.

the economy:

In a d d i t i o n
monopoly

capi t a 1 , monopoly l a b o r , competi t i ve capi t a l s cornpeti t i ve
labor

and S t a t e 1 a b o r .

popul at i on i s
is

not a c l i e n t group (because i ts compos i t i on

principally

ex i st e nc e i s
Sta t e .

In addi t i on , al t hough the surpl us

former members of competi t i ve 1 a b o r ) , i ts

al so an i n f 1 uence upon the a c t i o n s o f the

The S t a t e serves the i n t e r e s ts o f capi t a 1 in gener al ,

and monopoly capi t a 1 in p a r t i c u l a r ,

by e n a c t i ng expendi t u r e

and tax programs which benef i t capi t a l

w h i l e a t the same

time seeming to meet the needs o f the o t h e r c l i e n t groups
as w e l l .
The S t a t e , accordi ng to 0 ' Connor, has ".

.

. two

basic and o f t e n mutua 1 l y c o n t r a d i c t o r y f u n c t i o n s - 20

accumulation and 1egi t i mi za t i on . 11
19 .
0 Connor,

op.

20Ibid .

6

, p.

.

ci t .

In o t h e r words , the

46

S t at e must e s t a b l i s h and m a i n t a i n condi t i ons under which
pri vat e capi t a 1 can be accumul at ed, and a t the same time i t
must c r e a t e and mai n t a i n soci a 1 harmony.
a c h i e v i n g these ends i s
t u r e programs.

for

21

One means of

the S t at e to undertake ex p e n di -

The f o l l o w i n g

diagram shows 0 1Connor 1s

c l a s s i f i c a t i on o f expendi t u r e s .
Social

Capi t a l

S o c i a J ^ n v e s t me n t
Phys
ic
a1
Physi
ca1
Capital

Human
Capi t a l

Soci al . Expenses
Wel f ar e

SociaJ^Consun^ti on
Goods “and
Se r v i c e s f o r
Working Class

Warf are

Social
I nsurance

As the diagram shows, 0 ' Connor c a t e g o r i z e s e x p e n d i tures

into

expenses.

two broad g r oups:

soci al

Under the headi ng o f s o c i a l

groups o f expendi t u r e s , soci al
s u mp t i o n .

capi t a l

Soci a 1 i nves t ment

into physical

ar e two sub­
co n ­

expendi t u r e s ar e cl ass i f i ed
and serve two pur poses:

sector p r o f i t

p r o j e c t s w i t h o u t whi ch the p r i v a t e
unprofitable;

capi t a l

i nvest ment and s o c i a l

and human capi t a l

( 1 ) t hey i n c r e a s e p r i v a t e

and s o c i a l

r a t e s by under t aki ng

i nves tments would be

and ( 2 ) they provi de i n c e n t i v e s

f o r new

p r i v a t e i n v e s t m e n t whi ch o t h e r w i s e m i g h t n o t have been under29
taken,"
Hi ghway e x p e n d i t u r e s , f o r exampl e, c o n t a i n el ement s
of bot h o f t h e s e purposes because hi ghways o f f e r access to
p r o f i t ab! e places
21

f o r new businesses to l o c a t e and a c t to

I b i d . , p . 6.

22

I b i d . , p.

102.

47

i nc r e a s e the v i a b i l i t y of e x i s t i ng p r i vat e i nvestments along
the highway r o u t e .
Expendi t ur es

for social

i nvest ment ar e made in

response to the needs o f monopoly capi t a l
better physical
results

and human capi t a 1.

f o r more and

These needs are the

o f the i n c r e a s i n g co mp l ex i t y of p r oduct i on in the

monopoly c a p i t a l

s e c t o r and the l a r g e s c a l e o f p hysi cal
23
investment projects .
At the s t a t e and 1oca 1 l e v e l s . ,
t hese t y p e s

of expenditures

particularly

t h o s e wh i c h ar e

incentives

f o r new i n v e s t m e n t s

attracting

i n d u s t r y and a t a x base t o s ta tes and communi t i e s .

Social
gr ouped i n t o

ar e i m p o r t a n t as met hods o f

consumption expendi tures can al so be sub-

two c l a s s i f i c a t i o n s :

"goods and s e r v i c e s c o n ­

sumed c o l l e c t i v e l y by the working cl ass and s o c i a l
a g a i n s t economi c i n s e c u r i t y . "

24

i nsurance

These expendi t ur es , a c c o r d ­

i ng to 0 1 Connor» a 11ow money wages to be l o w e r because the
costs of

t he pr ogr ams a r e s o c i a l i z e d .

capi t a 1 supports

these expendi t ures as w e l l .

I n O' Connor' s
characterized
fare
yield

surplus

primarily

analysis,

social

as " w e l f a r e and w a r f a r e "

expenditures

Thus, monopol y
25

expens es are bes t
expenditures.

Wel­

ar e not pr o du ct i ve i n the sense t h a t t hey

value,

or p r o f i t s , and they are undertaken

f o r 1eg i t i mi za t i on p ur poses.

ar e a l s o p r i n c i p a l l y

Warfare expendi t ures

f o r l e g i t i mi z a t i o n pur poses.

f o r expendi t ur es of t h i s type a r i s e s because of the
2 3 1bi

d . , pp.

2 5 1bi

d.,

p.

103- 104.
124.

24Ibid.

, p.

124.

The need

48

r e l a t i o n s h i p s of p r o du c t i on in the monopoly s e c t o r .

The

needs o f monopoly capi t a 1 are met by these expendi t ur es
because they serve to c o n t r o l

the sur pl us p o p u l a t i o n

( those

unemp1 oyed or redundant as a r e s u l t o f p r o du c t i on in the
monopoly s e c t o r )

and to gai n and c o n t r o l

f o r e i g n markets

whi ch help to absorb the s urplus produc t i on o f the monopoly
sector. ^
It

should be emphasized t h a t the t h r ee types o f

expendi t ur es

discussed above ( s o c i a l

consumpti on,

and

social

i n v e s t me n t ,

soci a 1

expenses) a r e i nc r e a s i ng not onl y

because of pressure from monopoly capi t a 1 , but a l s o from
monopoly s e c t o r 1 abor.
according

These two g r o u p s , in g e n e r a l ,

to O'Connor,

support the growth of t h e s e

of e x p en di t ur es because i t
Monopoly
to

capital

increase

types

is in t h e i r i nt eres ts to do so.

s upports

these programs because t hey tend

rates,

reduce cos ts to monopoly capi t a l

p rofit

of pens i on and h e a l t h
and because s o c i a l

programs won by uni ons i n bargai ni ng,

expenses i ncrease the t r a c t a b i 1 i ty of

the s u r p l u s

population.

support

e x p e n di t ur e s becasue they i nc r e a s e p r o d u c t i v i t y

and

real

pension

the

wages,

Monopoly uni ons, on t he o t he r hand,

meet member demands f o r b e t t e r h e a l t h and

programs, and l i k e c a p i t a l ,

the wrath of the surpl us p o p u l a t i o n .
These r e l a t i o n s h i p s

because the unions f e a r
p7

between the monopoly s e c t o r and

the S t a t e al so hold t r u e a t the s t a t e and l o c a l
2 6 I b i d . , p.

1 50.

2 7 I b t d . , p.

l e v e l s of

4 1.

49
government.

The major d i f f e r e n c e i n the r e l a t i o n s h i p s a t

the two l e v e l s

o f government i s the composi t i on o f pr essur e

groups a t the s t a t e

level.

At t h i s

i s j o i n e d by competi t i ve capi t a l
governments.

po

" [T]he f i s cal
thus i s

l e v e l , monopoly c a p i t a l

to pr essure s t a t e - l e v e l

Ne ve r t h el es s s O' Connor concludes t h a t
f u n c t i on o f s t a t e governments and agenci es

chiefly

to provi de soci a 1 capi t a l

and s o c i a l

invest­

ment . " 29
Thus, i t

appears t h a t in terms o f the nat ure of t he

rol e of t he Sta te per s e 9 0 ' Connor has not broken new ground
from ot her modern r adi c a 1s except to gi ve the S t at e a more
autonomous r o l e .
St a t e f o r
gi v e s

this

The v a l u e of The F i s c a l

study lie s

t o the radi cal

Crisis

in the a n a l y t i c a l

t heor y of the S t a t e .

o f the

r e f i nement i t
By d e f i ni ng t he

c l i e n t groups o f the S t a t e s 0 ' Connor1s a n a l y s i s i s

an a i d

in i denti f y i ng both the benefi ts and benef i c i a r i e s

o f gover n­

ment expendi t u r e s .
The Nature of Benefi ts and
Benefi t Reci p i e n t s
The problem of i dent i fy ing b e n e f i c i a r i e s
ment expendi t ures

of gov er n ­

i s made somewhat e a s i e r as a r e s u l t of

O' Co n n o r ' s a n a l y s i s because he has been s p e c i f i c i n d e f i n i n g
the c l i e n t
0

groups of the S t a t e .

11 i s , however, p o s s i b l e

' Connor' s a n a l y s i s i n c o r r e c t l y i n a s tudy such as t h i s .

For example,

one could contend t h a t because monopoly 1abor

28Ibid,

, p.

83.

29Ibid.

, p.

86.

to

50

often

s u p p o r t s , and d i r e c t l y

benef i ts f r o m , speci f i c p r o ­

grams a t the expense o f the competi t i ve l ab o r s e c t o r ,
would be reasonabl e to assi gn the b e n e f i t s
to monopoly l a b o r .

This,

of c o u r s e , i s

procedure used i n conventi onal

s t udi e s .

it

of t hese programs

e x a c t l y the
If

one accepts

t he r a d i c a 1 theory of the r o l e o f the S t a t e and t he n at ur e
of cl ass c o n f 1 i c t i nherent i n a capi t a l i s t s o c i e t y ,

it

is

i n c o n s i s t e n t and erroneous to assume t h a t the o nl y b e n e f i c i a r i e s of gover nment prog rams are t he monopoly w o r k e r s .
The a dop t i on of the a s s u mp t i o n t h a t monopoly s e c t o r
wo r k e r s

do benef i t i s ,

convent i onal

of course, al so c o n s i s t e n t w i t h t he

ass umption rega rdi ng t r ans f e r payments.

the c o n v e n t i o n a l

But

a n a l y s i s assumes a t heor y o f the r o l e o f

t he S t a t e whi c h p e r m i t s governmen ts to a c t i n an ad hoc
fashion
tic

t o s e r v e any group i n

support.

The radi cal

the s pectrum o f i ts p l u r a l i s m

t h e o r y , w i t h i ts emphasi s on the

class bias of a capi t a l i s t S ta t e , does not permi t the
assumption t h a t merely because a per son o r group r e c e i v e s
di r ec t benef i ts
fits

ar e

(as i n the case o f t r a n s f e r s ) t hese bene­

limited

immaterial

to the r e ci p i e n t s .

who r e c e i v e s

is

di r e c t monetary b e n e f i t s ,

whose b e h a l f the government says i t
pur pose of the expendi t u r e i s
suppressing class

Rather, i t

co n f 1 i c t

is

or on

a c t i n g , when the

to m a i nt a i n the s yst em hy

(social

expenses) o r to enhance

the a b i 1 i t i es of the sys tern to serve capi t a l i s t i n t e r e s t s .
There can be l i t t l e

doubt t h a t capi t a l i sts do, in f a c t ,

51

b e n e f i t from expendi t ur es ost ensi bl y undertaken f o r the
b e n e f i t o f ot her s or to m a i n t a i n the e x i s t i n g system of
institutions.
11

i s al so p o s s i b l e to argue t h a t the h i s t o r i c a l

development of c a p i t a l i s m has been such as to f o r c e
capitalists

i n v o l u n t a r t l y to undertake and cooperat e in

the i n c r e a s e d s o c i a l i z a t i o n o f the costs of many programs.
The b e s t exampl es o f pr ogr ams whi ch m i g h t f a l l

into

c a t e g o r y are s o c i a l

The a r g u ­

ment cont ends

expenses such as w e l f a r e .

t h a t gover nment i n c u r s i o n s

into

this

the p r i v a t e

sect or to a i d workers and the s u r p l u s p o p u l a t i o n , i n p a r ­
ticulars

ar e a t ype o f ransom p a i d by c a p i t a l i s t s

tinued s t a b i l i t y

i n a syst em w h i c h i s

hard to hoid t o g e t h e r .
ar gue t h a t c a p i t a l i s t s

30

Thus 9 i t

f o r con­

becomi ng i n c r e a s i n g l y

might be p o s s i b l e

ar e n o t t r u l y

to

the b e n e f i c i a r i e s

of

some p u b l i c s e c t o r programs.

This argument wo u l d r e s t on

a contention

have been r e l u c t a n t

that c a p ita lis ts

some ac t i o n s o f the S ta te as i t
role

in

p 1ays an i ncreas i ngl y 1a r g e r

the economy because capi t a l i s t s

o f the r easons

to accept

ha ve not been aware

f o r S ta te a c t i o n .

Thi s argument may w e l l

be t r u e .

B r i d g e s argues

t h a t some S t a t e programs a re not merel y concessions on the
p a r t of capi t a l i sts to p r o t e c t t h e i r i nteres ts 9 but a r e t he
r e s u l t s of s t r u g g l e s by the cl asses a g a i n s t S t a t e a c t i o n
because of an awar eness of the cl ass bias o f the S t a t e .
30
31

Mi 1i band, The S t a t e , op.
Bri dges, op.

c i t . , p.

ci t . ,

18 8 .

p.

73.

31

52
Only h i s t o r y w i l l
pr ograms

be abl e to j u d g e whether the e x p e n d i t u r e

e x t a n t ar e stop-gap measures in the s t r u g g l e by the

S t a t e a g a i n s t the breakdown o f the system.
ar gument i s

true,

any p r o l o n g a t i o n o f t h e e x i s t i n g

through l e g i t i m i z a t i o n
increases p r o f i t s
accumulation,

or b i a s e s i n s t i t u t i o n s

benefits

capitalists.

t i on 9 0 ' Connor c o n v i n c i n g l y
t hese pr ogr ams now.
projects

a variety

the

syst em

pr ogr ams and any pr ogr am t h a t

some pr ogr ams may have seemed l i k e

sector

But even i f

t o wa r d p r i v a t e

In a d d i t i o n *

ransom a t t h e i r i ncep-

ar gues t h a t c a p i t a l

Capitalists

although

supports

need o r d e s i r e p u b l i c

because t h e S t a t e p l a y s a c r u c i a l

r o l e in

o f ways to e n a b l e the soci oeconomi c sys tem to

fun c ti on.
I n a s e n s e , any c r i s i s
t i me a c r i s i s
ist

is

State.

f o r c a p i t a l i s m because t h e S t a t e i s

But i t

is

obvious

caused by t he c a p i t a l i s t

crisis

is

of the S t a t e i s a t the same
a capital­

a l s o t h a t t he c r i s i s

itself

syst em and t h e cause o f t h e

p r i m a r i l y t h e p r i v a t e a c c u m u l a t i o n of p r o f i t s and

t he s o c i a l i z a t i o n

of costs.

fiscally,

the c a p i t a l i s t s

continued

legitimacy.

So, w h i l e t h e S t a t e s u f f e r s

continue

0 1C o n n o r 1 s a n a l y s i s

is

to enjoy p r o f i t s

particularly

useful

and

in dis-

tinguishing

bet ween e x p e n d i t u r e s

capitalists

and t hos e which i ndi r e c t l y b e n e f i t capi t a 1 i sts

by v i r t u e

t h a t d i r e c t l y b enef i t

of thei r s yst em- sust ai ni ng q u a l i t i e s ,

f i r s t c a t e g o r y are s o c i a l
they e i t h e r

I n the

i nvestment expendi t ures because

i ncrease p r o f i t r a t e s o f e x i s t i n g p r o j e c ts or

53
they p r ovi de i n c e n t i v e s

f o r new ac cumul at i ve end e a v o r s .

P r o f i t r a t e s ar e h i ghe r in both cases because the costs o f
these programs are soc i a 1 i z e d , i . e . ,

not borne p r i v a t e l y .

Soci a 1 cons umption expendi t ur es , on the o t he r hand,
i n d i r e c t l y b e n e f i t capi t a l 1 sts by provi di ng s e r v i c e s

to the

worki ng cl ass which tend to promote and i nsure the w o r k e r s '
coopera t i on wi t h t he syst em.

Soci al

consumpti on al so

provi des i n s u r a n c e agai ns t t he economi c i nsecuri t y engen­
dered by t he syst em wh i c h helps t o make workers more t r a c t ab l e and l o we r s
raises

profits.

alleviate

the l e v e l
Finally,

o f money wages s wh i c h i ndi r e c t l y
social

expenses a l s o p a r t i a l l y

t he pr obl ems o f p e o p l e made r e d u n d a n t by t he

economi c syst em and h e l p t o f o r e s t a l l
syst em by t he s u r p l u s

a r e v o l t a g a i n s t t he

population.

Even though O ' C o n n o r ' s a n a l y s i s
devot ed to t he f e d e r a l

level

is

predomi n a t e l y

o f government, t h e r e i s

no

reas on to assume t h a t t h e f u n c t i ons of s t a t e and 1 oca 1
gover nment programs d i f f e r markedly from t h o s e undertaken
a t t he f e d e r a l

level.

Rat her,

it

is

necessary to d e f i n e as

a c c u r a t e l y as p o s s i bl e the ben ef i c i a r i es o f the expendi t ur es
o f s t a t e and l o c a l
state

level

t he n a t i o n a l

is

g o v e r n me n t s .

The c a p i t a l i s t

somewhat d i f f e r e n t l y

level

composed t han t h a t a t

because t he s t a t e - l e v e l

not onl y monopoly capi t a l

c l a s s a t the

class

includes

but al so c o m p e t i t i v e capi t a l .

I t woul d be e r r o n e o u s t o assume t h a t c a p i t a l i s t s
the sol e benef i ci a r i es of any e x p e n d i t u r e prog ram.
a re two c r i t e r i a used i n t h i s

s tudy to det er mi ne the

There

are

54

p r o p o r t i o n of expendi t ur es whi ch accrue to c a p i t a l i s t s .
The f i r s t
costs."

is

based on the concept of " s o c i a l l y

necessary

S o c i a l l y necessary cos t s , genera 1 l y , are those

which ar e needed to m a i n t a i n an economy' s pr oduct i ve capac i t y a nd 1 abor f o r c e i n a given s t a t e of p r o du c t i vi ty or
efficiency.

To exami ne speci f i c o u t p u t s , however, s o c i a l l y

n e c es s a r y costs

".

. . cou 1 d be unambi guously d e f i ned .

.

.

as those o u t l ays i nd i s p e n s a b l e to the p r o d u c t i on and
32
d e l i very of a u se f ul o u t p u t . "
These cos ts a r e i n d e p e n ­
dent of t h e n a t u r e of any g i v e n economic system and a i d i n
maki ng a " .

.

. c o mp a r i s o n bet ween the costs i n c u r r e d

in

producing the a c t u a l

out put and those t h a t would be i n c u r r e d
33
i n p r o d u c i n g a more r a t i o n a l o u t p u t ."
Baran and Sweezy ar e r e f e r r i ng, i n the pr ev i ous

q u o t e s , to

the out put o f c o mmo d i t i e s

They ( pr o ba bl y e r r o n e o u s l y )

34

i n a capi t a l i s t sys t em.

i n c l u d e a 11 government spending

i n t h e i r concept of sur pl us i gnori ng any c r i t e r i o n of s o c i a l
necess i t y .

35

11

seems appr opr i a t e , however, to e v a l u a t e both

t he outputs of government ( f o r us e f u l n e s s ) and the cos ts of
32Pau I Baran and Paul Sweezy s Monopoly Capi t a l
(New Y o r k :
Modern Reader , 1 9 6 5 ) , p. 132.
3 3 1bi

d.,

p.

138.

34

Ron S t a n f i e l d s "A R e v i s i o n o f the Economic Surplus
Concepts," Re vi ew o f Radi ca 1 P o l i t i c a l Economi cs , Vol . 6
( F a l l , 1 9 7 4 ) , p . “69.
35

Baran and Sweezy, op. ci t . ,

p.

370.

55
the out p ut to determi ne the s o c i a l
of these programs.
are s o c i a l l y

n e c e s s i t y o f the costs

Thus, t h i s study assumes t h a t t h e r e

necessary cos ts i nc urred by t he government;

the p r ob 1 em is to det er mi ne what p r o p o r t i o n these costs
are o f t o t a l

costs.

Soci a 1l y necessary cos ts , i n the c o n t e x t o f t h i s
s t u d y , ar e those p r o p o r t i ons of the costs of expendi t u r e
programs wh i c h woul d be i ncurred under a h y p o t h e t i c a 1
s o c i a l i s t economi c sys tem.
total

The di f f e r e n c e bet ween the

cos t o f any program and the s o c i a l l y

o f t h a t pr ogr am i s

necessary cost

co ns i dered "cl ass goods "

36

and i s

assigned as t he meas ure of the benef i t from the prog ram
whi ch a c c r u e s
this

t o the capi t a l i s t c l a s s .

The r e l e v a n c e o f

t y pe o f compari son of costs bet ween economi c syst ems

i s s u p p o r t e d by Baran and Sweezy i n
pr oduced comrnodi t i e s .

37

The second c r i t e r i o n
capitalists

is

used to assi gn b enef i ts to

the degree to which capi t a l i sts b e n e f i t

f r om t h e d i s t o r t i o n
exampl e,

the case o f p r i v a t e l y

t he f u l l

of i ns t i t u t i ons to t h e i r ends.

costs o f educa t i ona 1 programs, espec i a l l y

e l e me n t a r y and s e c o n d a r y , can be consi dered s o c i a l l y
sar y and t hu s c o n t a i n no benef i t to c a p i t a l i s t s
first

c r i t e r ion .

neoclassical
36
37

For

neces­

under the

However, t h er e i s agreement even among

economists t h a t s tudents are not t he only

Edwards and MacEwan, op.
Bar an and S w e e z y , op.

c i t . , p.

c i t . , pp.

19.

131-138.

56
b e n e f i c i a r i e s of educa t i on e x p e n d i t u r e s .
quot e from B i r d and DeWul f s t a t es t h i s

The f o l 1owi ng

posi t i o n :

A b e t t e r p u b l i c e d u c a t i o n sys t em, f o r i ns t a n c e ,
can be vi ewed as a s u b s t i t u t e f o r p r i v a t e t r a i n ­
i n g f a c i l i t i e s by business men . . . A l so , the
e l i m i n a t i o n o f p ov er t y may pr o mot e a s t a b l e s o c i a l
c l i m a t e , the b e n e f i t s of wh i c h go not o nl y to the
d i r e c t b e n e f i c i a r i e s of p u b l i c hospi t a 1 s and t r a n s ­
f e r p a y m e n t s . 38
Aaron and McGui r e

39

wi despr ead b e n e f i t s

a l s o acknowl edge t h a t t h e r e ar e more
f r om c e r t a i n e x p e n d i t u r e s

t h a t are a t t r i b u t a b l e
ventional
is

procedure

in

cases

beneficiaries.

of e x te rn a litie s

those p r o p o r t i o n s

to c onsi der

general

to d i r e c t

goods and d i s t r i b u t e

than those
The c o n ­
of this

o f t he e x p e n d i t u r e s as

them a c c o r d i n g l y .

Thus,

ass umpt i on t h a t c api t a l i s t s - - r a t h e r t h a n t h e g e n e r a l
receive

of

part

t he b e n e f i t s

o f t he s e e x p e n d i t u r e s

a change o f

f o r m t han o f

substance,

transfers.

Conventional

studies

t he e x i s t e n c e o f e x t e r n a T i t l e s
I den t i f y 1ng B e n e f i t s
Ther e
attempt

is,

to d e f i n e

of course,

socialist

economy o r

capitalists

c i t .,

38
' B i r d and De Wu l f ,
p. 47.
39

an a r b i t r a r y
of

do n o t r e c o g n i z e

Fiscal

e l e me n t i n any

total

necessary

or p u b l i c

Aaron and Mc Gu i r e ,

i s more

Reci pi en t s

t h e amount o f b e n e f i t

from e d u c a t i o n

public--

f r om t r a n s f e r payment s.

and B e n e f i t

socially

t he

e x c e p t i n case o f

typically

those p r o p o r t i o n s

whi c h wo u l d c o n s t i t u t e

type

expenditures

costs

in a

r e c e i v e d by

h e a l t h expendi t u r e s .

Incidence S t u d i e s , o p .

op. c i t .,

p.

916.

57
There al s o seems to be no way to avoi d t hese j udgmental
problems because t h e r e i s no a^ p r i o r i

method o f d e t e r mi n i ng

e i t h e r the c h a r a c t e r i s t i cs o f a h y p o t h e t i c a l

s o c i a l i st

budget i n M i c h i g a n or the b e n e f i ts r e c e i ved by capi t a 1i s ts
from what a r e consi dered s o c i a l l y necessary programs.
ever s w i t h

How­

r e f e r e n c e t o t h e second c r i t e r i o n , p r e v i ous

st udies have ass umed v a r i ous p r o p o r t i ons o f s p e c i f i c goods
expendi t ures whi ch ar e a 1 l o c a b 1 e as general
Thi s s t u d y o f t e n
t he a l l o c a t i o n
socially

uses t hese p r o p o r t i on s as g u i d e l i n e s

o f c l a s s goods b e n e f i t s .

for

I n t h e case of

n e c e s s a r y c o s t s , howevers r a t h e r t han advance t he

p o s i t i o n t h a t the p r o p o r t i on s
way d e f i n i t i v e ,
indicators
tional

goods benef i ts .

it

is

i n which d e par t ur e s

from c o n v e n ­

l ea d.

necessary a l s o to d e f i n e

are the r e c i p i e n t s

study are i n any

p r e f e r a b l e to use them merel y as

o f the d i r e c t i o n

assumptions
It

is

used i n t h i s

the c a p i t a l i s t s

o f the b e n e f i t s of cl ass goods.

above, the s t r o n g e s t cl ass a t the s t a t e
monopol y and competi t i ve capi t a l i s t s .

level

is

who

As noted

composed of

Identifying

these

groups and the i n d i v i d u a l s who compri se them i s di f f i c u l t
because of
capitalist.

t he v a r i o u s

p r o b 1 ems i n h e r e n t i n d e f i n i n g a

The most b a s i c

definition

is

t h a t a capi t a l i s t

owns the means o f pr o du ct i on and r e c e i ves t he p r o f i t
generated by the wo r k e r s

t h a t he hi r e s .

Mi 1iband al so con­

curs w i t h O' Connor by recogni zi ng the i n f l u e n c e over gover n­
men t wi el ded by b u s i n e s s m e n . ^

This r a t h e r s i m p l i s t i c

^ M i 1 i band , The S t a t e , op.

c i t . , pp.

15-16.

58
definition

i gnor es o t h e r persons and groups t h a t may p r o ­

p e r l y belong i n the dominant c l a s s .
a d e f i ni t i on o f w o r k i n g c l a s s

Howard Wachtel

has used

t h a t by e l i m i n a t i o n y i e l d s a

definition

of capi t a l i sts s i m i l a r to t h a t used i n t h i s

study:

.

".

. [ I ] t w i 11 s u f f i c e , as an a b s t r a c t i o n s to

i nclude i n the w o r k i n g cl ass a l 1 b l u e - c o l 1 ar workers and
s a l a r i ed

w h i t e - c o l l a r workers 9 e x c l u d i n g managers and
41
o f f i cers of c o r p o r a t i ons and p r o f e s s i o n a l employees."
Wachtel‘ s d e f i n i t i o n
o f what some w r i t e r s

i n c 1udes many of the members

have c a 1 1 ed t he "new working c l a s s ."

Thi s new w o r k i n g cl ass i s composed of educat ed workers whose
j obs ar e q u a l i t a t i v e l y

d i f f e r ent from those of the b 1 ue
42
c o l l a r w o r k e r s who ar e the "old" worki ng c l a s s .
As

A r o n o w i t z and o t h e r s make c l e a r ,

however, the n a t u r e of the

j obs p e r f o r me d by the m a j o r i t y of educated workers does not
offer

t ho s e workers any g r e a t e r c o n t r o l

pr ocess

over the p r o d u c t i ve

t han t h e j o b s of the blue c o l l a r w o r k e r s .

Thus ,

most w h i t e c o l l a r w o r k e r s al so belong to the working c l a s s .
The pr obl em f o r t h i s
capi t a l i s t

class

study,

t h e r e f o r e , i s to d e f i n e the

as members of income groups.

For the pur pose o f t h i s
d e f i n e d by t h e i r

receipts of six

s t u d y capi t a l i s ts are
k i n d s of i ncome:

non-farm

^ Howard Wachtel , "Class Consciousness and S t r a t i f i c a t i on i n the Labor Pr ocess, " Review o f Radi cal P o l i t i c a l
Economics, V o l . 6 ( S p r i n g , 1 9 7 4 ) , pp. 13- 14.
4?
‘ See, f o r ex ampl e, S t a n l e y A r o n o w i t z , "Does the
Un i t e d Sta t es Have a New Worki ng Class?" in The Worker in
" P o s t - I n d u s t r i a l " S o c i e t y , e d . by Bertram Si 1verman and
Murray Yanowitch (New Y o r k : The Free Press , 1 9 7 4 ) , pp.
195-208.

59

net sel f - e mpl oy me nt income* di vi dends, u n d i s t r i b u t e d c o r ­
porate p r o f i t s ,

r e a l i zed and u nr e a 1 i zed capi t a l

i n t e r e s t f r om general

debt.

11

gai ns and

i s obvious t h a t not a 11

persons who r e c e i ve these types o f i ncome fa 11 i nto the
def i ni t i on o f capi t a l i s t s .

However , to the e x t e n t t h a t

these i t ems o f i ncome reduce the necess i t y f o r a person to
sell

h i s or her 1 abor s e r v i c e s , they should be cons i dered

capi t a 1i s t i ncome.

Further,

the di s t r i b u t i on of t hese kinds

o f i ncome i s

c l o s e t o wh at one wo ul d e x p e c t t h e d i s t r i b u t i o n

o f i ncome o f

t he s t a t e - l e v e l

Approximately

c a p i t a l i s t cl ass

73 p e r c e n t o f c a p i t a l i s t

to l o o k l i k e :

i ncome accrues

members o f the top two i ncome b r a c k e t s , where i t

to

i s expected

t h a t t he pr e p o n d e r a n c e of capi t a 1 i sts ar e a l s o 1 oca t e d .
A more p r e c i s e met hod o f i d e n t i f y i ng capi t a l i s t s
mi ght be t o e s t a b l i s h a t h r e s h o l d
i ncome,

e.g.,

level

43

by i ncome

of capi t a 1 i s t

30 p er c ent or 50 p e r c e n t o f t o t a 1 i n c o me ,

whi ch woul d be t he c r i t e r i on f o r i nclus i on i n the capi t a 1 i s t
class.

U n f o r t u n a t e l y , data f o r Mi chigan do not exi s t to

enabl e one t o i d e n t i f y

those i nd i vi dua 1 s or f a m i 1 i es which

r e c e i v e t he s e i t ems o f i ncome above t h r e s h o l d
Implicit

i n t he di scussi on i n precedi ng s e c t i o n s is

t he a s s u mp t i o n t h a t

t he b e n e f i t s

r e c e i ve d by capi t a l i s ts

d i f f e r bo t h q uanti ta t i vel y and q u a l i t a t i v e l y
r e c e i v e d by o t he r i dent i f i abl e r e c i pi e n t s .
a

levels.

from those
Another purpose

^

^See the i ncome di s t r i b u t i on data in Chapter V.

60
of t h i s se ct i o n i s to discuss the q u a l i t a t i v e d i f f e r e n c e s

in

these benefi t s .
The q u a ! i t a t i v e d i f f e r e n c e between the b e n e f i t s
r e c e i v e d by capi t a l i s t s

and di r e c t r e c i p i e n t s i s g r e a t e s t

i n the case of t r a n s f e r payments.

There i s no doubt t h a t

those who r ecei ve t r a n s f e r payments r e c e i ve a c t u a l

purchase

i ng power, w h i l e the benef i ts to capi t a 1 i s t s - - t h e benef i ts
of s t a b i l i z i n g
the s u r p l u s

the economy and m a i n t a i n i n g harmony w i t h i n

popula t i on- -do not lend t h e ms e l v e s to meas u r e -

ment i n money t e r ms .

These b e n e f i t s

arise

principally

from t he 1 eg i t i mi za t i on f u n c t i on served by t r a n s f e r paymen t s ,
although s o c i a l

i n s urance t r a n s f e r s

a c c u mu l a t i o n f u n c t i o n .
allocating

to capi t a l i s t s

the f a c t t h a t a l l

payments ac c r u e t o the r e c i p i e n t s

o f the money

this

s tudy i s

the b e n e f i t s of e x p e n d i t u re programs w i t h
is

would seem

o f t r a n s f e r payments.

Si n c e t he procedure used i n

p r o g r a ms , i t

the

Equa t i ng b e n e f i ts to cos ts and

p a r t of the b e n e f i t s

to be i n c o n s i s t e n t w i t h

serve p r i m a r i l y

to equa te

the c o s t s of those

ne c e s s a r y to d i v i d e the money amounts of

t r a n s f e r s bet ween t r a ns f e r r e c i pi ents , who r e c e i v e money
benefits,
no l e s s

and c a p i t a l i s t s

important,

Thus, t h i s

who r e c e i v e

benefits

less

tangible,

but

f r om t h e same e x p e n d i t u r e s .

s t u d y assumes t h a t e x t e r n a l i t i e s , in t h e form of

c l a s s goods s a r i s e

from the p r o v i s i o n o f t r a n s f e r programs.

The value of t he cl ass goods b e n e f i t s
di f f e r e n c e between the s o c i a l l y
program and the a c t u a l

is

assumed to be the

necessary cos ts o f the

costs o f the program.

61

A Met hodol ogi cal
It

is d e s i r a b l e a t t h i s

t i o n s whi ch ar e used i n

Summary

point

the r a d i c a l

to r e s t a t e the assump­

a n a l y s i s and al so to

summari ze i n advance the methods used to a l 1 ocate ex p e n di ­
tures w i t h

t h i s appr oach.

the r a d i c a l

analysis

is

The p r i m a r y purpose o f conducti ng

to demonstrate t h a t assumptions

about the r o l e o f the S t a t e i n a capi t a l i s t

society that

ar e di f f e r e n t from those used i n c o n v e n t i o n a 1 n e o c l a s s i c a l
studies w i l l
results

l e a d t o ma r k e d l y d i f f e r e n t

expenditure

incidence

even t hough o t h e r i m p o r t a n t a s s u mp t i o n s a r e t h e same

i n both a n a l y s e s .
The a s s u mp t i o n s common to the convent i onal
radical

approaches used i n t h i s

t he s t a t e l e v e l
gener al

are r e l a t i v e l y

study a r e t h a t s t u d i e s a t
f r e e o f t h e p r o b 1 em of

e q u i l i b r i u m i ncome d i s t r i b u t i o n s

vastly greater

i n f l u e n c e o f t he n a t i o n a l

d i s t r i b u t i o n o f i ncome w i t h i n

and

because of the
economy on t h e

the s t a t e .

F u r t h e r 9 the

as sumpt i on of the i d e n t i t y o f costs and b e n e f i t s , common
to al most a l l

previous

retained in t h is

study.

The p r i n c i p a l
tions i s

expend i t u r e i n c i d e n c e s t u d i e s , i s

d e p a r t u r e from the conventi onal assump­

the us e of radi ca 1 assumpti ons about the r o l e o f the

St at e i n a capi t a 1i s t s o c i e t y .
t i on t h a t

the S ta te r e f l e c t s

I n s t ea d o f the usual assump­

the needs of a l l

its

peopl e a nd

acts f o r the benef i t o f wi d el y di f f e r i ng groups of people ,
the assumpti on i n the r a d i c a l

part of this

study is t h a t the

62
government i n many c a s e s , and u l t i m a t e l y in a l l

cases,

p r i m a r i l y in the i n t e r e s t s

of a s i n g l e cl ass o f p e o p l e ,

that i s ,

Thus, w h i l e i t

the c a p i t a l i s t s .

the r a d i c a l
convent i onal

act s

i s admi t t ed i n

a n a l y s i s t h a t the b e n e f i c i a r i e s

identified

in

s t u d i e s do r e c e i ve some benef i t from the

expendi t u r e s , i t

i s assumed t h a t each e x p e n d i t u r e i ncludes

some element of cl ass good b enef i t which accrues s o l e l y to
capi t a 1i s t s .

The c o u n t e r p a r t ,

i n c onve nt i ona l

stu d ie s , of

the cl ass goods benef i t i s the p r o p o r t i o n o f general
benef i t cont ai ned in many expendi t u r es .

goods

CHAPTER I V
THE DISTRIBUTION OF INCOME AND TRANSFERS:
CONVENTIONAL ANALYSIS

The d i s t r i b u t i o n

of i ncome used in t h i s study is

deri ved from one developed by Douglas R o b e r t s .

Roberts

develops hi s f i na 1 i ncome d e f i ni t i on and di s t r i b u t i on by
s t a r t i n g wi th the Bureau of the Census d e f i ni t i o n o f money
income, a d j u s t e d f o r u n s h i f t e d bus i ness t a x e s .

Si nee t he

Census income data used are f o r 1969 and the t ax i ncidence
study covers f i s c a l
a small

1970,

the d i s t r i b u t i o n

i ncrease in p o p u l a t i o n ,

these a d d i t i o n a l
identical

al t hough i t

is adjusted f o r
i s assumed t h a t

fami 1 i es have an income d i s t r i b u t i o n

to t h a t r e po r t e d f o r 1969.

The i ni t i a'l d i s t r i b u t i o n of i ncome, c a l l e d adj usted
money 1ncome, is presented in Table 1.

To t h i s i ncome ,

the f o l l o w i n g i terns were added by Roberts to a r r i ve a t a
broad def i ni t i on o f i ncome:

( 1 ) undi s t r i buted corpora te

p r o f i t s , ( 2 ) i nputed r e n t of owner-occupied dwel 1 ings
farm),

( 3)
1

room and board f u r n i shed empl oyees,

R o b e r t s , op.

cit.

63

( 4)

( non­

employer

TABLE 1
D i s t r i b u t i o n of Money Income f o r Mi chi gan, 1970
( 1)
Fami 1 i es

Income
Bracket

(Units

($000)

Hundreds)

in

(2 )
Unr e l a t ed
Indi vi dua! s
(Units

in

(3)
Di s t r i buti on
of Uni ts
(Hundreds )

(4)
Percent
of
Tot al
Un i t s

1 ,816
2, 076
1 ,565
1 ,356
1 ,231
1 ,275
1 ,369
1 ,613
1 ,782
1 ,729
3 , 3 14
3, 814
4, 802
1 ,205
28, 947

6 . 27
7. 17
5.41
4. 68
4. 25
4.40
4. 73
5.57
6. 16
5.97
11 .45
13. 18
16. 59
4.16
99. 99

Hundreds)

Under 1
1-2

2-3
3-4
4-5
5-6
6-7
7- 8
8- 9
9-10
10-12

12-15
15-25
Over 25
TOTALS

395
523
718
766
799
887
1 ,014
1 ,257
1 ,492
1 ,527
3,051
3, 632
4, 676
1 ,166
21, 903

1 ,421
1 ,553
847
590
432
388
355
356
290
202

263
182
126
39
7, 044

( 5)
Adjustment
for
Popul at i on
I ncrease
(Hundreds)

(6)

Adj usted
Di s t r i but i on
of Uni t s
(Hundreds)

21

1 ,837

24
18
15
14
15
16
18

2,100

20
20

38
44
55
14
332

1 ,583
1 ,371
1 ,245
1 ,290
1 ,385
1 ,631
1 ,802
1 ,749
3, 352
3, 8 5 8
4, 857
1 ,219
29, 279

TABLE 1 ( c o n t ' d . )
( 7)
Mean
Income

Income
Bracket

(8 )

T ot a l
Money
Income
(Mill ions)

($000)

Under 1

$

1-2

2-3
3- 4
4-5
5-6
6-7
7-8
8- 9
9-10
10-12

12-15
15-25
Over 25
TOTALS

Sour ce:

346
1 ,453
2, 444
3, 412
4,431
5, 398
6, 404
7, 415
8, 395
9, 397
10, 838
13, 270
18, 326
38, 943

$

63. 56
305. 13
386. 89
467. 79
551. 66
696. 34
886. 95
1,209.39
1 , 5 1 2 . 78
1 ,643.54
3,632.90
5,119.57
8,900.94
4,747.15
30,124.59

( 9)
Percentage
Distribution
of Money
Income
. 21
1 . 01
1 .28

1 .55
1 .83
2.31
2. 9 4
4.01
5. 02
5. 46
12. 06
16. 99
29. 55
15. 76
99. 98

Douglas Robert s, " I nc i dence of
St a t e and Local Taxes:
A Case
Study f o r Mi chi gan, 1 970"
(unpubl i shed Ph.D. di s s e r t a t i o n ,
Mi chi gan S t a t e Uni ve r s i t y , 1 9 7 5 ) ,
Table 2.

66

c o n t r i b ut i ons to s o c i a l
pension p l a n s ,
f i nanci al
capi t a l

( 5)

s e c u r i t y and p r i vate h e a l t h and

s e r v i ces f ur n i s h e d wi t ho u t charge by

intermediaries,

gains,

and ( 7)

( 6)

r e a l i zed and u n r e a l i zed

i mputed farm i ncome , i ncl ud i ng the

i mputed r e n t and the imputed va 1 ue of food and f u e l

con­

sumed on the farm.
11

is

obvious t h a t some i ncome items have been

excluded f r om t h i s d e f i ni t i on o f i ncome.
excluded i terns ar e

" i ncome g e n e r a t e d through s e r v i ces

r ender ed to o n e s e l f ,
ance p o l i c i e s ,

Some o f the

i mputed i n t e r e s t on mutua 1 1 i f e i n s u r ­

i mput ed i ncome from dur ab l e goods „ g i f t s ,

and beque st s, f r i nge benef i ts s uch as employee di scounts
on expense ac c o u n t s , as w e l l

as c e r t a i n p u b l i c a s s i s t a n c e

programs such as food stamps and me d i c a r e ."
By way of c o mp a r i s o n ,
i ncome d e f i n i t i o n s

it

is

useful

2

to exami ne the

used i n

the two most r e c e n t s t a t e - 1 evel
3
st udi es of expendi tures and net f i seal i nci dence.
Ross
uses an i ncome concept he c a l l s
Thi s d e f i ni t i o n s u b t r a c t s

" f a m i l y money i ncome. "

from the O f f i c e of Business

Economi cs persona 1 i ncome d e f i ni t i o n the f o l l o w i n g
"personal"

i ncome of i ns t i t u t i ons, personal

■institutional

population,

money wages and s a l a r i e s ,

i terns:

i ncome o f the

and non-money income such as non­
imputed i n t e r e s t on government

bonds, imputed r e n t from owner-occupied homes, and food and
^ I b i d . , Chapter 2.
3
R o s s , op. c i t . , and Eapen and E a p e n , op.

cit.

67
f uel

consumed on the f a r m .

income d e f i ni t i on i s
i ts use.

11

is Ross' f e e l i ng t h a t t h i s

i n c l us i ve of enough i tems to w a r r a n t

The benefi ts o f expandi ng the d e f i ni t i on fa 11

s h o r t , i n Ross' opi ni on s o f the cos ts o f i naccur ate e s t i ­
mates associ a ted w i t h

the ex p an si on . ^

On the o t h e r hand, Eapen and Eapen begin w i t h
Census money i ncome, add food and l odgi ng f u r n i shed to
employees, r e a 1 i zed capi t a 1 g a i ns ,

r e t a i ned e a r n i ngs o f

corpora t i ons and imputed r e n t from owner-occupi ed homes.
Thus, Roberts 1
he ns i v e than

e i t h e r o f t he d ef i ni t i ons used i n

recent s t a t e - l e v e l
i denti ca1 to

d e f i ni t i on o f i ncome i s

f i s cal

t h a t used i n

more compr e­
two ot her

i nci dence s t u d i e s , and is al most
the 1956 M i c h i g a n s t u d y ,

d i s t r i b u t i o n and deri va t i on of broa d i ncome
Tabl e 3 .

5

The i ncome d i s t r i b u t i o n

is

6

The

shown i n

data i n T a b l e 3 are ample

evi dence of the degree o f income i n equal i t y i n M i c h i g a n i n
1970.

For exampl e, the 1owes t 2 7 . 8 p e r c e n t of fami 1i es

recei ved onl y 5 . 7 p e r c e n t of t o t a 1 broad i ncome, w h i l e the
h i g h e s t 4. 2 p er cent of fami 1i es r e ce i ved 2 0 . 8 p e r c e n t of
broad income.

11

is

i mp o r t a n t to remember t h a t many of the

i t ems excluded from t he d ef i ni t i o n o f broad i ncome would
accr ue to upper i ncome groups, making t he d i s p a r i t y i n
i ncome sha res even worse .
^Ross , op. c i t . , pp. 2 4 - 2 5 .
5
Eapen and Eapen, op. c i t . , p. 16.
C
Musgr ave and D a i c o f f , op. c i t . , pp.

161-164.

TABLE 2
Source of Income by Income Class f o r
F ami l i es and Un r e l a t e d I n d i v i d u a l s
(Mean Income Values in D o l l a r s )
Income
Bracket
($0 0 0 )
Under 1
1-2

2-3
3-4
4-5
5-6
6-7
7-8
8- 9
9-10
10-12

12-15
15-25
Over 25

Total
Mean

$

346
1 ,453
2, 444
3, 412
4,431
5, 398
6, 404
7, 415
8, 395
9, 397
10, 838
13, 270
18,326
38, 943

Sour ce:

Wages and
Salaries

$

10 2

375
829
1 ,525
2,501
3, 614
4, 848
6, 150
7, 333
8, 295
9, 779
12, 018
16, 340
26, 585

Non-Farm
SelfEmployment
$

6

17
50
80
123
166
296
283
284
342
388
499
938
7,691

Farm
Sel f Employment
$

3
5
29
36
58
92
70
105
86

56
62
87
96
235

Soci al
Securi ty
$176
727
924
893
829
617
429
320
219
211

158
162
146
180

Publ i c
Assi stance
$ 27
159
203
200

213
114
57
43
37
25
21

16
11
8

Other
$

32
169
409
679
798
795
704
514
437
468
429
487
795
4, 243

Douglas Roberts, " I nc i dence of S t a t e and Local Taxes:
A Case Study f o r
Mi chi gan, 1 970" (unpubl i shed Ph.D. di s s e r t a t i o n , Michigan S t a t e U n i v e r s i t y ,
1 9 7 5 ) , Table 3.

TABLE 3
Det er mi nat i on of the Broad D e f i n i t i o n of Income f o r Mi chi gan,
( M i l l i o n s of D o l l a r s )
(1)

Income
Bracket
( $000)

Under 1
1-2

2-3
3-4
4- 5
5-6
6-7
7-8
8- 9
9-10
10-12

12-15
1 5-25
Over 25
TOTALS

Money
Income

63. 56
305.13
386. 89
467. 79
551. 66
696. 34
886. 95
1,209.39
1,512.78
1,643.54
3,632.90
5,119.57
8,900.94
4,747.15
30,124.59

(2)

Undistributed
Corporate
Profits

0

1 . 99
4. 55
12. 08
15.07
16. 38
19. 12
15.32
15.01
14.01
24. 72
36. 87
99. 20
348. 42
622. 74

(3)
Imputed
Rent
(Non-Farm)

12. 43
18. 74
16. 15
17. 13
16. 29
16. 50
20.1 5
23. 52
32. 43
35.31
85 . 85
121. 80
204. 35
81 . 29
701. 94

( 4)
Room and
Board for'
Employees

.10

.39
.64
1 .01

1 .52
2. 26
3. 26
4. 8 8
6. 43
7. 06
15. 95
22. 56
38. 63
15.77
120. 46

1970

( 5)
Employer
C o n t r i bu t i o n s
to Soci al
Securi t y and
Heal th Plans

(6 )
Servi ces of
Fi nanci al
Institutions

2. 83
11 .34
18. 78
29. 76
44 . 64
66. 60
96. 00
143.47
189.17
207. 59
469. 03
663.51
1 , 1 3 6 . 08
463.71
3, 5 42 . 5 1

2.37
8. 9 8
8.10

10. 45
12. 92
6. 72
14. 79
11 .27
13.13
17. 25
31 .65
37. 15
7 6 . 39
68. 04
319.21

TABLE 3 ( c o n t 1d . )

Income
Bracket
($0 0 0 )

(7)
Real i zed and
Un r e a l i zed
Capi ta 1
Gains

(8 )
Imputed
Farm
Income

Under 1

0

1 .96

1-2

13. 96
34. 89
53.11
69.01
88. 78
99. 64
89. 17
68. 92

2.10

2-3
3-4
4-5
5-5
6-7
7-8
8- 9
9-10
10-12

12-15
15-25
Over 25
TOTALS

88.01

131. 82
203. 93
479. 97
2,456.05
3,876.96

Sour ce:

1 .93
1 .95
1 .82
2. 06
2.17
2. 46
2. 63
2. 54
5. 06
5. 85
7.60
3. 10
43. 23

(9)
Total
Ad d i t i ona1
Income

19. 69
57. 50
85 . 0 4
125. 49
161.27
199. 30
255. 13
290. 09
327. 42
371. 77
764. 08
1 ,091.67
2,042.22
3,436.38
9,227.05

(10)
Percentage
of Total
Addi t i ona 1
I ncome
. 21
.62
.92
1 .36
1 .75
2. 16
2. 77
3. 1 4
3. 55
4. 03
8.28
11 .83
22. 13
37 . 24
99. 99

(11)
Broad Income
(Money Income
Plus A d d i t i o n a l
Components)
83. 25
362. 63
471. 93
593. 28
712. 93
895. 64
1,142.08
1,499.48
1,840.20
2, 0 15 . 3 1
4,396.98
6,211.24
1 0 , 9 4 3 . 16
8,183.53
39,351.64

(12)
Percentage
Di s t r i b u t i o n
of Broad Income

.21

.92
1 .20

1 .51
1 .81
2. 28
2. 90
3.81
4. 68
5. 12
11. 17
15. 78
27.81
20. 80
100.00

Douglas Roberts, " I n c i d e n c e of S t at e and Local Taxes:
A Case Study f o r
Mi chi gan, 1970" (unpublished Ph.D. d i s s e r t a t i o n , Michigan S t at e U n i v e r s i t y ,
19 75 ) , Table 4.

71
For the purpose of an expendi t u r e i ncidence s t u d y ,
however,

it

necessary to modi f y t h i s income d e f i ni t i on

is

in order to t r e a t taxes and t r a n s f e r s
sistently.

tax, i . e . ,
taxes.

The d e f i n i t i o n
it

s t a t e and l o c a l

it

is

from

3 is

before­

a l s o i ncl udes t r a n s f e r payments from f e d e r a 1,
governments.

o f the t r a n s f e r s

necessary
the

of income i n T a b l e

i nc l u d es income used to pay s t a t e and 1 ocal

But i t

counting

( negat i ve t a x e s ) con­

i ncome

to

r emove

T h e r e f o r e , to avoi d d o u b l e ­

to be d i s t r i buted i n
state

distribution.

p r e - p u b l i c sector

and
This

local

this study,

transfer

procedure

payments

yields

the

i ncome di s t r i but i on whi ch i s used as the

i ncidence base in t h i s

study.

T h e D i s t r i b u t i o n o f T r a n s f e r Payment s
Un d e P T o n v e n t To n a 1 TTs s um pTT'ons

The t r a n s f e r s

to be removed are i n t e r e s t on general

debt, p u b l i c w e l f a r e payments, unemployment compensation
benefi t s , workman' s compensati on payments, and s t a t e employee
retirement

benef i t s .

Table

4 s h o ws the amount o f t r a n s f e r

payments and ot her expendi t ures to be d i s t r i b u t e d

in

s t u d y.

tab 1e are

Cen s u s

As n o t e d , the sources o f the data i n
Bureau p u b l i c a t i o n s .

These were chosen, r a t h e r than

g o v e r n m e n t a 1 budgets , because they
gorical

classifications

this

this

pr o vi de c o n s i s t e n t c a t e ­

of expendi t ur es and al s o because

these are the onl y da ta t h a t provi de i nf or mat i on about
spending by a l l

1evel s o f 1oca 1 government.

The amounts i n

Table 4 do not i n c l u d e e i t h e r f e d e r a l l y - s h a r e d revenues to

TABLE 4
Net Expendi tures of Michigan S t a t e and Local Governments
Fi s c a l 1970
($

Item
T r a n s f e r Payments
Publ i c Wei f a r e
I n t e r e s t on General Debt
Unemployment
Workman's Compensati on
Ret i rement

Millions)

Tot al
Expenditu re

Federal
Revenue

593. 7
179. 6
178.1

261 .3

Charges

Net
Expendi t u r e

33 2. 4
179. 6
178.1

------------------

-------------------

2043. 4
789. 6

21 .3
207. 4

132. 4
250. 6

1889.7
331 . 6

Highways

560.1

170. 5

9. 8

379. 8

Heal t h and H o s p i t a l s

461 .7

32. 5

191 .2

238. 0

1382. 3
6364.1

87.0
780. 0

177.1
761 .1

1118. 2
4823. 0

Education
Loca 1
Higher

A l l Other General
TOTALS
Sour ce:

Expendi t ures

10.8

164. 8

10.8

164. 8

U.S. Department of Commerce, Bureau of the Census, Governmental Finances
in 1 9 6 9 - 7 0 , Table 17, p. 32 and Table 18 , pp. 36-37 ; Sta te Government
Finances in 1970, Table 7, pp. 2 1 - 2 4 , Table 16, p. 46, Table 17, p. 47
and Table 18, p. 48; 1967 Census of Governments, Vo l . 7, S t at e Report
No. 22, Mi chi gan, Table 18, p. 26 and Table 19, p. 27.

73
both s t a t e and l oc a l

l e v e l s or revenues r e ce i ved from

charges by s t a t e and l o c a 1 l e v e l s o f government.
Census Bureau data f o r 1970 do not g i ve t he d e t a i 1
of the d i s t r i b u t i o n

by

1ocal shared r e v e n u e s .

expendi t u r e cat egory o f f e d e r a l - t o The

1967 Census of Governments^

gives amounts by the type of u n i t o f 1 ocal government,

so

percent age o f t o t a 1 l o c a l l y shared revenues which went

the

to school

d i s t r i cts i n

apply i n

1970.

tributed

to

percentage

1967 (21 .4 p e r c e n t )

is

assumed to

The remai nder o f shared revenues i s

dis­

each expendi t u r e ca t egory accordi ng to the
of t o t a l

1 oca 1

spending comprised by each

category .
Charges are d e f i ned as "amounts r e c e i ved from the
publi c f o r performance of speci f i c s e r v i ce s b e n e f i t i ng
person charged and from s a l e s

the

vices

.

.

."

They

include

of commodi t i e s and s e r ­

fees, t o l l

c h a r g e s , t u i t i on and

from the performance of commer ci al - t ype a c t i v i t i e s
O
such as parki ng 1 o t s .
revenue

These amounts have been s u b t r a c t e d from gross
expendi t u r es because one purpose of the s tudy i s
with

to combine

a tax i nci dence study to measure net f i s c a 1 i nc i d e nc e

in

Mi chi gan.

Charges reduce t o t a l

b enef i ts and s u b t r a c t i ng

in

t h i s way assumes t h a t charges equal

ben ef i ts and are

7 U. S.

Department of Commerce, Bureau of the Census,
1967 Census of Governments, V o l . 7, S t a t e Report No. 22,
Mi chi gan (Wash in g to n : U.S. Government Pri n t i ng O f f i c e ,
1970).
8

Bureau of the Census, Governmental
19 6 9 - 7 0 , op. c i t . , p. 53.

Fi nances in

74

distributed

in the same way,

i.e .,

the assumption about

charges i s s i m i 1 ar to the b e n e f i t p r i n c i p l e o f t a x a t i o n .
To a l 1 ocate charges 1evi ed a t the l o c a l
1967 Census data were used a g a i n .

The percentage of t o t a l

charges 1evi ed f o r each expendi t u r e c a t e g o r y i n
assumed to be the same i n
charges to t o t a l
revenue."
total

1967 was

1 970, as was the p r o p o r t i o n of

"charges and mi seel l aneous general

These assumpti ons ar e necessary because onl y

amounts, r a t h e r than d e t a i l e d

available

levels,

for

the l o c a l

The f i r s t
highways, h e a l t h

d i s t r i b u t i o n s , are

levels.

f o ur expendi t u r e c a t e g o r i es ( e d u c a t i on,
and

hospi t a l s , and t r a n s f e r p a y m e n t s )

consti t u t e a p p r o x i ma t e l y 77 percent of t o t a l

expendi t ures

and are those t y p i c a l l y w h i c h are consi dered s p e c i f i c goods
expendi t u r e s .

The remai ni ng 23 p e r c e n t , " a l l

expendi t u r e s , i s

made up o f p o l i c e ,

general

c o n t r o l , 1 ocal

another

"all

p a r k s , f i nanci al

intermediaries .

i n t e r e s t earni ngs
brackets

a d m i n i s t r a t i o n and

9

debt i n t e r e s t w i 11 be d i s t r i b u t e d on the

basis of hoi di ngs of muni ci pal
financial

f i r e , sewer, s a n i t a t i o n ,

other g e n e r a l " category.

General

o t he r g e n e r a l "

debt by i n d i v i d u a l s

and

The d i s t r i b u t i o n of i n d i v i d u a l

is made onl y to the upper t h r e e income

(over $ 1 2 , 0 0 0 ) on t he assumption t h a t t a x - f r e e

municipal

bonds are r a t i o n a 1 investments onl y f o r upper

^ I b i d . , p . 37.

75

income t a x p a y e r s . ^®
commercial

The share of government debt hel d by

banks i s assumed to benef i t e q u a l l y both bank

users 3 in the way o f subsi di zed s e r v i c e s , and bank s h a r e holders.

I n t e r e s t accr ui ng to o t he r f i nanci al

is assumed to b e n e f i t t h e i r s h a r e h o l d e r s .

institutions

These a 11 o c a t i ve

methods are s i m i l a r to those used by Eapen and Eapen in
thei r s tudy of expendi t u r e i nci dence in Connecti c u t ,
1o
by Musgrave, e t a l . s in t h e i r n a t i o n a l study.

11

and

A d i s t r i b u t i o n among hol ders of Mi chigan s t a t e and
local

debt i s

distribution

not a v a i l a b l e . ,

but d a t a

of the debt of a l l

in the Uni ted S ta tes in 1967.
Manual ,

and Go v e r n m e n t
is

held

13

by i n d i v i d u a l s ,

accounts,
remainder

42 p e r c e n t i s
is

held

state

and

that

local

it

is

93 percent
between

of
1957

held

banks,

debt

trust
and the

and n o n - f i nanci al

necessary to e s t i m a t e the

by o u t - o f - s t a t e

debt

privately

and personal

hel d by o t h e r f i n a n c i a l

debt

estimated

of

he 1d by commercial

a mo u n t

governments

Accordi ng to Moody's Muni ci pa 1

partnerships

In a d d i t i o n ,

has

s t a t e and l oc a l

37 p e r c e n t

institution s.
of

are avai 1 a b l e f o r t he

residents.

One study

the i ncrease i n Mi chi gan
and

1 9 6 2 was h e l d

by

^ S e e S t a n l e y S u r r e y , "Federal Income T a x a t i on of
S t a t e a n d L o c a l G o v e r n m e n t O b l i g a t i o n s , " in Readings in
F e d e r a l T a x a t i o n , e d . by F r a n k Sander and David W e s t f a l l
I New Y o r k :
Foundation Pr e s s , 1970) , p. 282.
11

Eapen and Eapen, op.

c i t .,

pp.

98-102.

12

Musgrave, e t a l . , op . c i t . , p. 34.
1O
Moody' s I n v e s t o r s S e r v i c e , I nc . (New York,
p.

15.

1969) ,

76
Michigan r e s i d e n t s .

14

As i de from Lees ' s t udy, which was

used by Eapen and Eapen, t he r e i s l i t t l e

p r ecedent f o r

di s t r i but i ng debt i n t e r e s t payments in s t a t e - 1 evel
neither
state

Brown 1e e , Musgrave a n d Da i c o f f , or Ross d i s t r i b u t e d

and l o c a l

study a s s u me s

debt i nt eres t payments.

descri bed f o r

commercial

banks

to

bank

shifting

This

of

In

not a l l

19 7 0 ,

publicly

percentage

is

interest

financial

and

transfer
local

the

4.5

stock
to

payments

assumption

payments

governments

which

also

percent

held

the

is

h ol der s and a s s u m e d

subject

to

out-of-state

owners of these f i r ms are Mi chigan

a s s u me d

in

debt hel d by Mi chi gan

i ns t i t u t i onal

non-financial

Im plicit
is

of g e n e r a l

shareholders

tributing

me n t s

the same p r o p o r t i ons t h a t Moody's

a n d o t he r

because

residents.

Therefore „ th is

the Uni ted S t a t e s .

The p r o p o r t i o n s

benefit

15

t h a t 90 p e r c e n t o f debt i n t e r e s t accrues to

res i dents held i n

Michigan

holders

s t udi es :

hoid

to

all

share16

residents.

f o r the purposes o f d i s ­

commercial

banks

and

other

i ns t i t u t i ons .
to

distribute

interest

redistribute

provide

individual

were M i c h i g a n

decision
that

of

services

interest

expenditures
income w h i l e

f i nanced

by

the

pay­

are
state

and

debt.

^ F r a n c i s A. L e e s , " I n t e r r e g i o n a l F l o w s o f F u n d s
Through S t a t e and L o c a l Gover nment S e c u r i t i e s ( 1 9 5 7 - 6 2 ) , "
J o u r n a 1 o f R e g i o n a l S c i e n c e , V o l . 9 , No. 1 ( 1 9 6 9 ) , p . 8 2 .
15
interest

Al 1 n a t i o n a l l e v e l
payments.

i fi

Inc.,

New Y ork S t o c k
197117 pp. 47-48.

studies,

however, di s t r i bute

Exchange Fact Book (New York:

NYSE,

77
Ross argues s t r o n g l y ,

but a p p a r e n t l y i n a c c u r a t e l y ,

that

i n t e r e s t payments are " f u n d a me n t a l l y d i f f e r e n t from o t h e r
17

kinds of government expendi t u r e s ."
taxpayers

and

He argues t h a t both

bond purchasers b e n e f i t ,

t h a t taxpayers

in

forego c u r r e n t taxes f o r f u t u r e

taxes and bond purchasers

forego 1i qui di ty f o r earni ngs .

T h e r e f o r e , he a r g u e s ,

interest

fice,

recipients

i.e.,
who

argument

is
The

studies
fits;
This

is

the

interest

a s s umption

basic

public

benefits

expenditures

taxes

are

earlier

i

n part

years

debt.

This

all

capital

of

purpose

Is

•/ 7

latter

of t h i s

part

and

study

to

o f expendi t u r e i nci dence

typically

additional
an d

productive

valued

used in t h i s
an

are

at

study.
cost

therefore

their

bene­

of

cost.

11 f o l l o w s

incurred

should

be

to

that

pro­

included

be d i s t r i b u t e d .

to
an

this s t u d y

are

The

expenditures

are

assumption

payments

which

time.

tenuous.

Further,
of

only

government p r o g r a m s

vide
in

sacrifices

that

these
is

t h a n , say, a r e c i pi ent o f educat i onal

liq u idity,

benefits

a qua 1 i t a t i v e l y di f f e r e n t s a c r i ­

make

attempt
is

used

a part,
to

pay

financed
also

outlay
measure

Ross , op.

to

w ill

net f i s c a l

measure

incidence,

must consi der t h a t c u r r e n t
for

expenditures

through

the

expenditure

c i t .» p . 83.

in

the

current year,

on the g r o u n d s

and

net

in

of p u b l i c

issuance

distribute,

expenditures,

incurred

fiscal

t h a t the

incidence

78

in money terms as i t

a c t u a l l y was in 1970.

I n t e r e s t on

genera 1 debt is di s t r i buted as shown in Tabl e 5.
Pub 1 i c wel f a re payments are a l s o i ncluded in the
d e f i n i t i o n of i ncome as developed by Roberts and t h e r e f o r e
must be e x c 1uded.
benefits

The di s t r i but i on of cash p u b l i c w e l f a r e

the same as the d i s t r i b u t i o n

is

of the p u b l i c

assi st ance paymen ts i nc 1 uded in the d e f i ni t i on o f money
i ncome.

Publ i c w e l f a r e payments in the amount o f $ 1 5 8 . 4

million a r e n e t
and l o c a l
also

shown

governments

in

Table

not i n c l u d e d
Medicaid

computed

tribution

are

not

the

i ncl uded wi t h the o t h e r w e l f a r e pay­

incidence

a s s u me d

to

are

me n t

nationally

the

Musgr ave,

p u b l i c w e l f a r e paymen ts

same as

(Table

distributed

a 1. , are d e r i v e d
18

be

compensation

$ 1 78 m i l l i o n ,

et

of a l l

of income.

paymen ts are i n c l u d e d , and t h e i r d i s ­

payments

Unemployment

ar e

of income.

s u b t r a c t e d from the d i s t r i b u t i o n

assistance

benefits

( l e s s medi cai d ) i s

the d e f i ni t i on and d i s t r i b u t i o n

medicaid

is

The di s t r i b u t i on by

payments, whi ch amount to $174 m i l l i o n ,

thus

H o w e v e r , when

payments

and

5.

in

is

me n t s w h i c h

public

f o r the purpose of p u b l i c w e l f a r e

cl ass o f p u b l i c w e l f a r e

Medicaid

is

shared revenues to both s t a t e

not i n c l u d e medi cai d payments.

do

i ncome

of f e d e r a l l y

in

by

of

2).

payments , amounti ng to
the

1968.

the d i s t r i b u t i o n

18

di s t r i b u t i on o f unemployThe data i n

Musgrave,

from the Brooki ngs MERGE f i l e

and t he

et a 1.,

5.

op.

c i t . , T a b l e 2,

p.

TABLE 5
;ribution

o f T r a n s f e r Payments - -

Co n v e n t i o n a l

Assumptions

($000)

Income
Bracket
( $000)

(1 }
I n t e r e s t on
Gener al Debt

(2)
Unempl oyment
Compensat i on

(3)
Workman' s
Compensat i on

( 4)
Public
Welfare

Amor n t

Pe r c e n t

Amount

Percent

Amou nt

Percent

A mo u n t

Percent

251
S64
884

. 26
. 99
. 91
1 . 21
1 . 50
. 82
1.72
I . 31
1 . 52
1 .97
3. 60
8 . 62
1 9. 78
55.79
100.00

5,684
6,496
4,915
4,274
12,591
13,052
14,546
12,343
14,194
14,655
24,219
17,719
28,711
4,680
178,079

3.19
3.65
2.76
2.40
7.07
7.33
8.17
6.93
7 . 97
8 . 23
13.60
9.95
16.12
2.63
100.00

344
393
297
259
761
7 89
880
74 6
858
886
1 ,465
1 , 071
1 ,736
283
10,768

3.19
3.65
2.76
2.40
7.07
7 .33
8.17
6. 93
7.97
8.23
13.60
9.95
16.12
2.63
100.00

4,277
28,666
27,558
23,440
22,806
12,670
6,810
6,018
5,702
3,801
6,018
5,227
4,593
792
158,378

2.70
18.10
17.40
14.80
14.40
8.00
4.30
3.80
3.60
2.40
3.80
3.30
2.90
.50
100.00

Under 1
1- 2
2-3
3-4
4-5
5-6

1,17 3
1 ,449
793

6-7

1 ,665

7-8
8-9
9-10
10-12
12-15
15-25
O v e r 25
TOTALS

1 ,274

I ,469
1 ,904
3,485
8,341
19,150
54,008
96,810

TABLE 5 ( c o n t ' d . )
Income
Bracket
($000)

Under 1
1-2

2-3
3-4
4-5
5-6
6-7
7-8
8-9
9-10
10-12

12-15
15-25
Over 25
TOTALS

( 5)
Ret i r ement
Be ne f i t s

(6)
Al l T r a n s f e r
Payments

Amount

Pe r c e nt

Amount

5, 108
24, 389
23, 400
19, 610
16, 479
12,689
9,393
8, 4 0 4
6, 262
5, 932
8 , 4 04
9, 887
11 ,371
3,461
164,789

3. 10
14. 80
14. 20
11 .90

15, 664
60, 908
57, 054
48, 756
54, 086
39, 993
33, 294
28, 785
28, 485
27, 178
43,591
42, 245
65,561
63, 224
608, 824

10.00

7.70
5.70
5. 10
3.80
3. 6 0
5. 10
6.00

6.90
2.10
100.00

Percent
2. 57
10.00

9.37
8.01
8.88

6. 57
5. 47
4. 73
4. 6 8
4.46
7. 16
6. 9 4
10.77
10. 38
99. 99

TABLE 5 ( c o n t ' d . )

Notes:

Co l u mn

(1 )

Co l u mn

(2)

Co l u mn
Co l u mn

(3)
(4)

C o l u mn

(5)

Co l u mn

(6)

Moody’ s Muni ci pal and Government Manual , 1969, p. 15; Tabl e 3,
columns 3 and 8 ; New York Stock Exchange Fact Book, 1971,
pp. 47-48.
Richard Musgrave, e t . a l . , The D i s t r i b u t i o n of F i s c a l Burdens
and B e n e f i t s , Table 2, p. 5.
D i s t r i b u t e d the same as column 2.
D i s t r i b u t e d by the d i s t r i b u t i o n of p u b l i c a s s i s t a n c e income
from Table 2.
D i s t r i b u t e d by the d i s t r i b u t i o n of so c i a l s e c u r i t y payments
from Table 2.
Sum of columns 1 - 5 .

82
defi ni t i on of income used i s comparable t o , al though some­
what more complete t h a n , t h a t developed by R o b e r t s .
recent s t a t e - l e v e l
ment benef i t s. ,

studies.,

onl y Ross di s t r i butes unemploy-

but his data are not usabl e f o r t h i s

The Census i n c o m e data shown i n
ment benefi ts i n

pensation

the "Other" c a t e g o r y , ,

1 umped w i t h

the

di s t r i bu t i on

payments.
compensation

be n e f i ts al so are i ncluded

d e f i ni t i on of i ncome in the "Other"

Ce n s u s
e mp 1 oyer

while

items

the purpose of a 11 oca t i ng unemp1 oymen t com­

for

Wor kman' s
in

study.

2 i ncl ude unemploy­

Table

such as i n t e r e s t and di vi dends , which ma k e t h i s
unsuitable

Of t he

contributions

category,

to the fund a re al so i nc 1 uded

in t h e i n c o m e d i s t r i b u t i o n and di s t r i buted by wages and
salaries.
me n t

a n d w o r k m a n ' s compensati on s y s t e m s ,

usable
tions

data
it

to

likely

of

u n e m p 1oymen t

wa g e s

an d

earners,

the

bulk

of

The

final

from

state
paid

already

both

as

and

local

ari d e m p l o y e r
been

Thus,

included
the

soci a 1 i n s u r a n c e

Thi s basis i f

distribution

opposed

types

transfer

thes e benef i ts on the

benef i ts .

salaries

wage

i ricome.

other

as

of

to

cash

considered
employees

the

retirement

is

workers,

payments.
in

this

study

retirement
to

system

is

and

systems
distribution

sim ilar

discussed

bene­

is

systems.

the

definition

expendi t u r e s

prefer­

because i t

salaried

con t r i b u t i ons
in

and the l ac k of

from workman' s compensa­

to d i s t r i b u t e

that

Benefits
have

reasonable

the

receive

fits

d is trib u te benefits

to

is

same b a s i s
able

of the s i mi 1a r i ty between t h e u n e m p l o y ­

Because

to

the

above and w i l l

83
be t r e a t e d in the same way.

B e n e f i t s pai d ar e removed from

the i ncome di s t r i but i on by the di s t r i b u t i on of s o c i a l

s e cur i ty

payments as they have been by both Musgrave, e t al . , ^

and

Ross . 20
The d i s t r i b u t i o n
medi cai d)

is

of a l l

shown i n Tabl e 5 .

t r a n s f e r paymen ts ( l e s s
These amounts and the

di s t r i but i ons o f these amounts a re s u b t r a c t e d from the
di s t r i but i on of i ncome i n Tabl e 3 to a r r i v e a t the d i s t r i ­
but i on of a d j u s t e d broad income, the i n c i d e n c e
study.

The d i s t r i b u t i o n

base f o r the

of a d j u s t e d broad i n c o m e i s

shown

in Table 6 .
7 shows the impact of a l l

Table

on the d i s t r i b u t i o n
ve n t i o na l

o f i ncome.

a s s umpti ons ,

11

t r ans f e r paymen ts

is o b v i o u s , under con­

t h a t the i nci dence of t r a n s e r pay­

ments as percen tages of a d j us t e d broad i ncome is r e g r e s s i ve
(pro-poor).
in

This

concl usi on i s al s o supported by the data

Table 6 which s how t h a t the d i s t r i b u t i o n o f adj us ted

broad income i s

less

before t r a n s f e r s
19I b 1d . ,
20

Ross,

were

Table

equal

than the d i s t r i b u t i o n

removed.
12,

op. cit.,

p.
p.

34.

39.

of income

TABLE 6
Distribution of Adjusted Broad Income - - Conventional Assumptions
($000)

Income
Bracket
($0 0 0 )
Under 1
1- 2

2-3
3-4
4-5
5-6
6-7
7-8
8-9
9-10
10- 12

12-15
15-25
Over 25
TOTALS

Broad
Income

Fercent of
Broad Income

83,250
362,630
471,930
593,280
712,930
895,640
1,142,080
1,499,480
1,840,200
2,015,310
4,396,980
6,211,240
10,943,160
8,183,530
39,351,640

.21

.92
1.20

1.51
1.81
2.28
2.90
3.81
4.68
5.12
11.17
15.78
27.81
20.80
10 0 . 0 0

*Families and unrelated individuals.
Source:

Tables 1, 3 and 5.

Percent of
Fami1ies*
6.27
7.17
5.41
4.68
4.25
4.40
4.73
5.57
6.16
5.97
11.45
13.18
16.59
4.16
99.99

Adjusted
Broad Income
67,586
301 ,722
414,876
544,524
658,844
855,647
1,108,786
1,470,695
1,811,715
1,988,132
4,353,389
6,168,995
10,877,599
8,120,306
38,742,816

Percent c
Income
.17
.78
1.07
1.40
1.70
2.21
2.86

3.80
4.68
5.13
11.24
15.92
28.08
20.96
10 0 . 0 0

TABLE 7
Transfer Payments as Percentages of
Adjusted Broad Income - - Conventional Assumptions
Income
Bracket
($0 0 0 )

Interest on
General Debt

Unemployment
Compensation

Workman1s
Compensation

Pub!ic.
Welfare

Retirement
Benefits

.37
.32

8.41
2.15
1.18
.78
1.91
1.53
1.31
.84
.78
.74
.56
.29
.26
.06

.51
.13
.07
.05

13.28
19.94
13.94
9.03
7.26
3.11
1.29

7.56
8.08
5.64
3.60
2.50
1.48
.85
.57
.35
.30
.19
.16

Under 1
1-2

2-3
3-4
4-5
5-6
6-7
7-8
8-9
9-10
10- 12

12-15
15-25
Over 25

.21
. 22
. 22

.09
.15
.09
.08
. 10

.08
.14
.18
.67

^Includes Medicaid payments.
*Less than .01.
Source:

Tables 3, 5 and 6 .

. 12

.09
.08
.05
.05
.04
.03
. 02
. 02

*

. 86
. 66

.40
.29
.18
.09
. 02

. 10

.04

All Tran;
Paymen1
30.13
30.63
21.05
13.68
12. 01

6.30
3.68
2.41
1.92
1.58
1.15
.78
.65
.79

CHAPTER V
THE DISTRIBUTION OF INCOME AND TRANSFERS:
A RADICAL ANALYSIS

The r a d i c a l

analysis

uses e s s e n t i a l l y

basic p r i n c i p l e as the conventi ona 1 a n a l y s i s
Roberts 1 i ncome d i s t r i b u t i o n
principle

( T ab l e 3,

i s t h a t to e s t a b l i s h

the same
to modi fy

Chapter I V ) .

This

the pre- government d i s t r i b u -

t i on o f income t r a n s f e r payments must be s u b t r a c t e d from
the d i s t r i b u t i o n

of i ncome developed by Roberts .

Transfer

payments must be exc 1 uded from the pre- government income
distribution

in the c onve nt i ona l

a n a l y s i s because the

benefi ts of t r a n s f e r payments accrue to the r e c i pi ents of
the money payments.

T r a n s f e r s are assumed to be n eg at i ve

taxes and because the impact of posi t i ve taxes i s not
included in the pre-government income d i s t r i b u t i o n ,

transfer

payments must al so be e x c l u d e d .
The basi c di f f e r e n c e between the r a d i cal
tional

analyses is the ass umpti on in the r a d i c a l

and conven­
analysis

t h a t t h e r e ar e q u a l i t a t i ve and quant i ta t i ve di f f e r e n c e s
between the money amounts o f t r a n s f e r payments and the
b e n e f i t s which accrue from t r a n s f e r spending by the govern­
ment.

The r a di c a 1 analys i s p a r t i a l l y
86

rejects

the money - f 1ow

87
concept of b e n e f i t i ncidence in the case o f t r a n s f e r s and
uses i nstead the b e n e f i t s - r e c e i v e d ,
beha1f - o f c o n c e p t .

or c o s t s - i n c u r r e d - o n -

Thus, the genera 1 ass umpti on about

t r a n s f e r payments i n the r a d i c a l

a n a l y s i s i s t h a t these

expendi t ur es ar e i ncurred on beha 1 f o f two groups :

(1)

the di r e c t r e c i p i e n t s of money payments and ( 2 ) capi t a l i s t s
who benef i t from the 1 egi t i mi z a t i on purposes o f t r a n s f e r
payments.
To the e x t e n t t h a t t r a n s f e r payments y i e l d cl ass
goods benef i ts they are s i m i l a r to the o t h e r expendi t ures
discussed in t h i s

study.

The money flows o f o t h e r e x p e n d i -

tures ar e assumed to be i n t e r m e d i a t e products , and the
basic i ncome d i s t r i b u t i o n

is assumed to be unchanged in the

absence of government spending f o r t hese pur poses.
f o r e , to be c o n s i s t e n t w i t h the c onve nt i ona l

There­

a n a l y s i s , only

the pr o po r t i on s of t rans f e r payments which yie 1 d money bene­
fits

to d i r e c t r e c i p i ents ar e s u b t r a c t e d from Roberts 1

broad i ncome d i s t r i b u t i o n .

These sub t r a c t i o n s ar e made by

usi ng the same ass umpti ons about the i nc i d e nc e of t r a n s f e r
payments as were used in the c onve nt i ona l
1

analysis.

1

An a l t e r n a t i v e method of a n a l y z i n g t r a n s f e r payments
in the r a di c a 1 a n a l y s i s would be to s u b t r a c t t r a n s f e r s from
broad income in the same way they are s u b t r a c t e d in the con­
venti onal a n a l y s i s .
This procedure would y i e l d i denti c a 1
pre-government i ncome d i s t r i b u t i o n s f o r both a n a l y s e s .
Rather than use t h i s method, however, i t seems p r e f e r a b l e
to be c o n c e p t u a l l y c o n s i s t e n t between the two analyses and
subt r ac t onl y those amounts o f t r a n s f e r s which y i e l d money
benefi ts to d i r e c t r e c i pi ents .

88
In the di s cuss i on which f o l 1 ows, i t

is

i mp o r t a n t to

recogni ze t h a t the p r o p o r t i o n s used ar e not o f f e r e d as
preci se e s t i mates of amounts of b enef i ts which may a c t u a l l y
accrue to capi t a l i s t s .

R a t h e r , these f i g u r e s a r e used to

gi ve i ndi c a t i ons of the di r e c t i on o f the f l ow o f b e n e f i t s
from s p e c i f i c

expend i t u r e s .

The di s cu ss i o n o f each e x p e n d i ­

t u r e i s based on the genera 1 p r i n c i p l e s of the r a di c a 1
a n a l y s i s o u t l i n e d in Chapter I I I ,

which pr o vi de s a r a t i onal e

f o r the a l l o c a t i v e p r o p o r t i o n s used.
For the purposes o f t h i s s t u d y ,

capitalists

w ill

def i ned as r e c i p i e n t s of the f o l 1 owi ng i ncome i t ems :
farm sel f -empl oyment income, d i v i d e n d s ,
corporate p r o f i t s ,

will

debt.

non­

undistributed

r e a 1 i zed and u n r e a l i z e d capi t a l

and i n t e r e s t on general

be

gai ns

Amounts ac c r ui n g to c a p i t a l i s t s

be d i s t r i b u t e d on the basis of the combined d i s t r i b u t i o n

of these si x income items

(see Tab 1e 8 ) .

Debt i n t e r e s t has been d i s t r i b u t e d c o n v e n t i o n a l l y

to

i ndi vi dua 1 r e c i pi e n t s , commerci a 1 banks and o t h e r f i n a n c i a l
institutions.

These b e n e f i t s are a 11 oca ted by r e t a i ned

cor por ate p r o f i ts and r e a l i z e d c a p i t a l
by demand deposi t s and di vi dends
dividends

(other f i n a n c i a l ) .

t enabl e in the r a d i c a l

(commercial

(individuals),
banks) and by

These d i s t r i b u t i o n s

ar e s t i l l

a n a l y s i s because the purposes f o r

which debt was i ncurred are v a r i e d ,

and to assi gn p r o p o r ­

ti ons which would accrue to capi t a l i s t s
would e n t a i 1 an h i s t o r i c a l
distributions

gains

and di r e c t r e c i pi ents

a n a l y s i s of debt i ss ua nc e.

The

of c a p i t a l i s t and d i r e c t r e c i p i e n t s ' i ncome

89

TABLE 8
The Distribution of Capi tal i st Income
($0 00)

Income
Bracket
($0 0 0 )
Under 1
1- 2

2-3
3-4
4-5
5-6
6-7
7-8
8-9
9-10
10- 12

12-15
15-25
Over 25
TOTALS
Source:

Capitalist
Income
1,353
23,556
55,236
95,936
124,052
152,574
190,851
175,537
159,385
185,285
328,161
498,404
1,206,734
4,332,341
7,529,405

Percent
. 02

.31
.73
1.27
1.65
2.03
2.53
2.33
2.12

2.46
4.36
6.62
16.03
57.54
100.00

Tables 2, 3 and Douglas Roberts,
"Incidence of State and Local
Taxes: A Case Study for Michigan,
1970" (unpublished Ph.D.
dissertation, Michigan State
University, 1975).

90
are q u i t e s i m i l a r because most of the i n t e r e s t payments
accrue to u p p e r - i ncome groups , and the addi t i onal
of a debt a n a l y s i s would probabl y y i e l d

little

complexi ty

in the way

of d i f f e r e n t r e s u l t s .
Soci al
debt s e r v i c e ,
r eas ons.

i nsur ance payments, i n c o n t r a s t to general
ar e pai d to di f f e r e n t peop 1 e f o r d i f f e r e n t

Unemployment compensation payments are made to

workers who are unemp1oyed and a c t i v e l y seeking work.

The

need f o r a syst em o f unempl oyment compensation a r i s e s
because o f t he n a t u r e of the c a p i t a l i s t

system.

The group

of unempl oyed per sons act s a s a f o r c e to keep wages down and
to d i s c i p l i n e

labor

system and t h e i r

g e n e r a l l y , but t h e i r acceptance of the

co o pe r a t i on i n

it

are i ncreased by the

unempl oyment c ompens at i on program .

People who ar e emp 1oy ed

are a l s o more t r a c t a b l e and coopera t i ve wi t h the sys tern
because t he y know t h a t unemp1 oyment compensati on e x i s t s
hel p them i f

t h e y become unempl oyed.

Capitalists

b e n e f i t f r om the unemployment syst em

because o f t h e f a v o r a b l e e f f e c t s
bot h empl oyed and unempl oyed.
unempl oyed w o r k e r s ,
worse o f f

W i t h o u t a pr ogr am t o s u p p o r t

capitalists

under t h e c a p i t a l i s t

o f t he syst em on w o r k e r s ,

and wo r k e r s woul d bot h be
economi c sy st em.

unempl oyed wo r k e r s woul d be even b e t t e r o f f
cal

socialist

to t he mi n i ma l
radical

to

But

in a hypotheti-

economy i n whi c h unempl oyment woul d be r educed
level

analysis

of

frictional

assumes t h a t

unempl oyment .

Thus t he

the p a r t of the b e n e f i t s of

91
cash unemployment payments accrue to c a p i t a l i s t s

as wel l

as the d i r e c t r e c i p i e n t s o f the t r a n s f e r s .
Fri c t i onal
which r e s u l t s

unemployment i s d e f i ned as unemployment

from adj ustments to the norma 1 process o f

changi ng j ob demands in a dynamic economy.
pose of t h i s

study, f r i c t i o n a l

t i on of t o t a l

2

For the p u r ­

unemp1 oyment is t h a t p r o p o r ­

unemployment c h a r a c t e r i zed by r e l a t i v e l y

short d u r a t i on of the per i od of unemp1oyment.
average d u r a t i o n of unemp1oyment in the U.S.
over 8 weeks 9 but 61. 9 p e r c e n t of a l l
were unempl oyed f o r 6 wee ks or l e s s .
defining

frictional

the e s t i m a t e o f
the f r i c t i o n a l
work f o r c e ,

3

unemployed persons
Thi s c r i t e r i o n

for

unemployment compares f a v o r a b l y wi t h

the Na t i o n a l

Pl anni ng Commission which sets

r a t e of unemployment a t 2 p e r c e n t o f the
employ­

unemployment.^

Under a more r a t i o n a l

economi c system unemployment

c ou l d c o n c e i v a b l y be r educed to f r i c t i o n a l
the s o c i a l l y

levels.

There-

necessary c o s t of unemp1 oyment i s

assumed t o be 62 p e r c e n t o f the t o t a l
Thus,

was s l i g h t l y

or a p p r o x i ma t e l y 50 p e r c e n t of the f u l l

ment 1 e ve 1 of

fore,

In 1970 the

cost of unemployment.

->8 p e r c e n t o f unempl oyment b e n e f i t s a r e a t t r i b u t a b l e

cWi1bur Thompson, A P r e f ace to Urban Economics
(Baltimore:
The Johns Hopkins Press, 1967 )”, p. 217.
3

U.S.

Manpower Report of t he P r e s i de n t , 1 974 (Washington
Government P r i n t i n g Offi ce; , 1974”)”, pp. 2.4 and 278.
^Thompson,

o p . c i t . , p.

209,

not e 3.

92
to the i r r a t i o n a l i t y of the c a p i t a l i s t system and accrue
to capi t a l i s t s

as cl ass goods ben ef i ts .

The b e n e f i t s

(62 p e r c e n t ) which accrue to r e c i pi ents

of unempl oyment b e n e f i t s are d i s t r i b u t e d
i n t h e c o n v e n t i on a 1 a n a l y s i s :

is allocated

the same way as

by the d i s t r i b u t i o n of

unemployment b enef i ts n a t i o n a l l y
pr o po r t i on of benef i ts

in

(see Chapter

IV) .

The

(38 p e r c e n t ) ac cr ui n g to capi t a l i sts

by the di s t r i b ut i on of capi t a l i s t i ncome from

Table 8 .
reasoning can be a p p l i e d to a 11 ocate the

Similar

of t h e wor kman' s c o mp e n s a t i o n system,.

benefits

of t h e wor k p r o c e s s
that

c onc e r n

profits
alist

for

in manufacturing

job

i n d u s t r i es i s

wor kman' s

in

such

s a f e t y is s e c o n d a r y to the need f o r

and the pr oduct i vi t y of w o r k e r s .

syst em i s

The n at ur e

part r esp ons i bl e

Thus , the c a p i t ­

f o r the need f o r

compensation.

The r a t i o n a l e o f a 11 oca t i ng p a r t of t h e s e h e n e f i ts
to c a p i t a l i s t s
serve:

a r i ses because o f the purpose t h a t they

workers are more w i l l i n g

to undertake r i s k y occupa­

ti ons and du t i e s and to l abor i n substandard c o n d i t i o n s .
Wi t h o u t

the wor kman' s compensation sy s tern, c a p i t a l i s t s

wo r k e r s would be worse o f f

and

than they c u r r e n t l y a r e , but

again workers c o u l d be b e t t e r o f f i n a f a c t o r y system w i t h
safer

worki ng c o n d i t i o n s .
Mi c h i g a n ' s

better

industrial

s a f e t y record i s c o n s i d e r a b l y

than the n a t i o n a 1 average:

10.6

injuries

m i l l i o n emp1 oyee hou r s, compared to the n a t i o n a l

per
r a t e of

93
15.2 i n j u r i e s

per m i l l i o n

employee h o u r s .

5

In the p u b l i c

s e c t o r , which oper ates w i t h o u t the p r o f i t m o t i v e , i n j u r y
rates are much h i ghe r than the p r i v a t e s e c t o r , w i t h the
exception of the f e d e r a l

government:

In 1968,

federa1

employees a veraged 6 .9 d i s a b l i n g i nj u r i es per m i l l i o n
hours, w h i l e s t a t e governments a veraged 1 2 . 1
1t i es had an average r a t e o f 2 4 . 9 i n j u r i e s

and muni ci pa 1 -

per mi 11 ion

hours. ^
Member f i r m s
70 p e r c e n t

firms

1ower i n j u r y frequency r a t e s

19 6 8 . 7

in

i n t he BLS d a t a

Si nee Mi c h i g a n ' s
national
trial

arrive

rate

states

sonabl e

The n a t i o n a l

than the non-NSC

and s t a t e averages r e f 1ected

i nc l u d e both NSC members and non-members.
i nj ury r a t e i s a l r e a d y w e l l

and i s

be low the

al so l o we r than i n o t h e r n o r t h e r n i n d u s ­

such as New York,

it

woul d p r o b a b l y

be u n r e a ­

to r e du c e the Michigan i nj ury r a t e by 70 per cent to
at

injuries.
sector

of the Nationa 1 S a f e t y Counci 1 averaged

is

a r a t e whi ch would r e p r e s e n t a minimal
And the i n j u r y

in

of

the n o n - p r o f i t p u b l i c

of no v a l u e as a goa 1 f o r the p r i vate s e c t o r .

seems p r e f e r a b l e
low i n j u r y

rate

level

t o assume t h a t Mi c h i g a n ' s

already

r a t e m i g h t be reduced by 25 percent

in

11

relatively
an economi c

5

U.S. D e p a r t me n t of L a b o r , Bureau o f Labor S t a t i sI n j u r y Rat es by Ind us t r y , 1 9 7 0 , BLS Report No. 406
( Wa s hi n gt o n:
U.S. Gover nment P r i n t i n g O f f i c e , 1 9 7 2 ) , pp.

tics,

2 and 25.

^Nat i onal S a f e t y Counci 1 , Acc i d ent Facts 1970
( Ch i cago: Na t i ona1 S a f e t y C o u n c i l , 19 70TT p. 36.
7 1 b i d . , p.

27.

94
system wh i c h would not e x p l o i t i t s w o r k e r s .

Thus, 25

percent of wor k ma n' s compensati on payments ar e assumed to
be s o c i a l l y unnecessary and accrue to the b e n e f i t of
capi t a l i s t s .

The share of di r e c t r e c i p i ents i s

by the di s t r i but i on of unemployment b e n e f i t s
reasoning
Rat her
able

used in the convent i onal

analysis

di s t r i buted

by the same
in

Chapter

than use the w a g e / s a l a r y d i s t r i b u t i o n , i t

is

IV.

prefer-

to use the unemployment benef i ts d i s t r i b u t i o n because

wage earners s as opposed t o s a l a r i e d employees , ar e more
likely

t o be s u b j e c t

to o n - t h e - j o b

injuries.

To the e x t e n t t h a t p u b l i c w e l f a r e r e c i p i e n t s

are

unable to work or care f o r themselves , i . e » 8 to t he e x t e n t
t h a t they a r e c h i l d r e n , ,

b 1 i nd s d i s a b l ed or e l d e r l y s some

sort of support woul d be necessary under a h y p o t h e t i c a 1
s o c i a l i s t economy.

T h e r e f o r e , the p r o p o r t i o n o f w e l f a r e

payments which ar e di s t r i buted to these people i s

consi dered

a s o c i a l l y necessary c o s t .
The d i s t r i b u t i o n

of w e l f a r e payments, minus m e d i c a i d 9

by Michigan s t a t e and 1oca 1 governments in 1970 was as
f o l 1ows:

10. 9 percent f o r o l d age a s s i s t a n c e , ,

aid to f a mi l i e s w i t h dependent chi 1dren (AFDC) ,
aid to the b l i n d s

9 . 5 p er c ent a i d

percent f o r g e n e r a l

assistance.^

52. 6 p e r c e n t
.5 p e r c e n t

to the d i s a b l e d , and 2 6 . 5
However, 44 p e r c e n t of

AFDC and 4 7 . 6 p er c ent o f genera 1 a s s i s t a n c e payments were f o r
8

Michigan Department of So ci al
Report Fi seal 19 7 0 ,

S e r v i c e s , Annual

95

elig ib ility

by reason of unemployment or f o r l a c k o f a wage

earner ( f a t h e r ) . ^

These payments would not be necessary

except f o r the c a p i t a l i s t system which gener at es unemploy­
ment and provi des almost no f a c i l i t i e s

( day-care c e n t e r s )

to enab1e mothers o f pr e- school age chi 1 dren to work.
T h e r e f o r e , 38 percent o f these p r o p o r t i o n s of AFDC and
gener al

a s s i s t a n c e payments is assigned to t he b e n e f i t o f

capi t a l i s t s .
as t h a t f o r

The r a t i o n a l e f o r t h i s
t he a l l o c a t i o n

Thus» i t
fits

division

is

the same

o f unempl oyment b e n e f i t s .

i s assumed t h a t

13. 6 p e r c e n t o f t h e bene­

of cash w e l f a r e payments accrues to c a p i t a l i s t s .

r e ma i n i n g 8 6 . 4 p er c ent i s a l l o c a t e d to t he r e c i p i e n t s
distributed

by t he d i s t r i b u t i o n

shown i n Ta b l e 2, Chapter I V .

The
and

o f p u b l i c w e l f a r e payments
Medi cai d payment s ar e not

s u b t r a c t e d f r om t he d i s t r i b u t i o n

o f income t o a r r i v e

at

a d j u s t e d broad income because they ar e not i n c 1 uded in the
definition

o f br oad i ncome, but they ar e i nc l uded i n t o t a l

w e l f a r e payments and d i s t r i b u t e d s i m i l a r l y

f o r incidence

purposes.
Government r e t i r e m e n t systems ar e a means of
en c o u r a g i n g a 1oya1 work f o r c e because ben ef i ts depend not
only on t h e l e v e l

of wages and s a l a r i e s

length o f an emp1o y e e ' s s e r v i c e .
i n the r a d i c a l
9

Ibid. ,

but al s o on the

The government i s assumed ,

a n a l y s i s , to e x i s t p r i m a r i l y to support and
p . 8 and p . 42.

96
l e g i t i m i z e the c a p i t a l i s t socioeconomic system a n d , t h e r e ­
fore,, p u b l i c employees a l s o work to t hese ends.
The benef i ts of payments f o r p u b l i c

r e t i r e m e n t ar e

a l s o assumed to benef i t both di r e c t r e c i pi en ts and
capi t a 1i s ts .

Because p u b l i c empl oyees a re rewarded f o r

t h e i r se r vi ces

i n governments the p r o p o r t i o n of b enef i ts

f rom r e t i r e m e n t payment s whi ch a c c r u e s

to d i r e c t r e c i p i e n ts

is determi ned by the p r o p o r t i o n o f t o t a 1 spending f o r
specific

goods 3 o t h e r t han p u b l i c r e t i r e m e n t s wh i c h a c c r u e s

to r e c i p i e n t s

o t h e r t han c a p i t a l i s t s .

t h i s appr oach i s

t h a t t o t he e x t e n t

The r a t i o n a l e

that

the costs of

s e r v i c e s p r o v i d e d by gover nment s a r e s o c i a l l y
so a l s o ar e t he c o s t s o f t he r ewar ds
who hel ped p r o vi de t he s e r v i c e s .

for

unnecessary »

f o r the c i v i l

servants

The p r o p o r t i on o f spec i f i c

goods e x p e n d i t u r e s which accrues to c a p i t a l i s t s

is

44. 49

percent.
As w i t h

t he o t h e r p r o p o r t i o n s

used i n t h i s

these p r o p o r t i o n s ar e not i n t e n d e d to be p r e c i s e ;
i n t e n d e d s ra t h e r , to i ndi cate the d i r e c t i o n
t ures f r om c o n v e n t i o n a l

a s s u mp t i o n s

lead.

accr ue t o d i r e c t

r e c i p i e n t s are d i s t r i b u t e d

but i on o f social

security

chapter*
they ar e

i n whi ch depar­
B e n e f i t s whi ch
by t h e d i s t r i ­

benef i ts from Table 2 s Chapter

IV.
The d i s t r i b u t i o n of t r a n s f e r payments by amount is
shown in Table 9 9 w h i l e Tab 1e 10 s hows the d i s t r i b u t i o n of
adj us ted broad i ncome t h a t r e s u l t s

from the r a d i c a l

analysis.

Table 11 shows the d i s t r i b u t i o n o f t r a n s f e r s as percent ages

TABLE 9
Distribution of Transfer Payments - - Radical Assumptions
( $000)

Income
Bracket
($000)

Under 1
1-2
2-3
3-4
4-5
5-6
6-7
7-8
8-9
9-10
10-12
12-15
15-25
Over 25
TOTALS

(1)
Interest on
General Debt

(2)
Unemployment
Compensation

(3)
Workman's
Compensation

(4)
Public
Welfare

Amount

Percent

Amount

Percent

Amount

Percent

Amount

Percent

251
964
884
1,173
1,449
793
1,665
1,274
1,469
1,904
3,485
8,341
19,150
54,008
96,810

.26
.99
.91
1.21
1.50
.82
1.72
1.31
1.52
1.97
3.60
8.62
19.78
55.79
100.00

3,547
4,184
3,585
3,509
8,956
9,434
10,765
9,195
10,268
10,718
17,966
15,521
28,623
41,808
178,079

1.99
2.35
2.01
1.97
5.03
5.30
6.04
5.16
5.77
6.02
10.09
8.72
16.07
23.48
100.00

259
299
246
228
618
645
730
620
703
728
1,215
986
1,732
1,759
10,768

2.40
2.78
2.28
2.12
5.74
5.99
6.78
5.76
6.53
6.76
11.28
9.16
16.08
16.34
100.00

3,699
24,835
23,967
20,526
20,060
11,384
6,429
5,702
5,383
3,814
6,139
5,942
7,420
13,078
158,378

2.34
15.68
15.13
12.96
12.66
7.19
4.06
3.60
3.40
2.41
3.88
3.75
4.68
8.26
100.00

TABLE 9 ( cont ' d. )
Income
Bracket
($000)

Under 1
1-2

2-3
3-4
4-5
5-6
6-7
7-8
8-9
9-10
10-12

12-15
15-25
Over 25
TOTALS

(5)
Retirement
Benefits

(6 )
All Transfer
Payments

Amount

Percent

Amount

Percent

2,851
13,765
13,525
11,816
10,357
8,532
7,069
6,373
5,030
5,097
7,862
10,342
18,064
44,106
164,789

1.73
8.35

10,607
44,047
42,207
37,252
41,440
30,788
26,658
23,164
22,853
22,261
36,667
41,132
74,989
154,759
608,824

1.74
7.23
6.93

8.21

7.17
6.29
5.18
4.29
3.87
3.05
3.09
4.77
6.28
10.96
26.76
100 .0 0

6.12

6.81
5.06
4.38
3.80
3.75
3.66
6.02

6.76
12.32
25.42
100.00

TABLE 9 ( cont ' d. )
Notes:

Column
Column
Column
Column
Column
Column

(1) Distributed same as Column 1 of Table 5.
(2) 38 percent distributed by the distribution of capitalist income, 62 percent
by the distribution of unemployment benefits from Musgrave, et. a ! . ,
Table 2, p. 5.
(3) Distributed 25 percent by capitalist income and 75 percent by the distribution
of unemployment benefits, Musgrave, et. a ! . , Table 2, p. 5.
(4) 13.6 percent distributed by capitali st income, 86.4 percent by the distribu­
tion of public assistance income from Table 2 (see text for explanation).
Does not include medicaid expenditures.
(5) 44.49 percent distributed by capitali st income, 55.51 percent by the dis­
tribution of social security income from Table 2.
( 6 ) Sum of columns 1-5.
(£>
lO

TABLE 10
Distribution of Adjusted Broad Income - - Radical Assumptions'*
($000)

Income
Bracket
($0 0 0 )
Under 1
1-2

2-3
3-4
4-5
5-5
6-7
7-8
8-9
9-10
10-12

12-15
15-25
Over 25
TOTALS

Broad Income
83,250
362,630
471,930
593,280
712,930
895,640
1,142,080
1,499,480
1,840,200
2,015,310
4,396,980
6,211,240
10,943,160
8,183,530
39,351,640

Percent of
Broad Income
.21

.92
1.20

1.51
1.81
2.28
2.90
3.81
4.68
5.12
11.17
15.78
27.81
20.80
100.00

Adjusted
Broad Income
72,677
319,095
430,930
558,126
674,216
868,206
1,119,602
1,480,166
1,820,850
1,997,114
4,367,516
6,181,045
10,894,654
8,123,836
38,908,033

Percent of
Adjusted
Broad Income
.19
.82
1.11

1.43
1.73
2.23
2.88

3.80
4.68
5.13
11.23
15.89
28.00
20.88
100.00

As explained in the text, only transfer payments which yield direct monetary
benefits under the radical assumptions are subtracted from broad income to
get adjusted broad income.
Source:

Tables 1, 3 and 9.

TABLE 11
Transfer Payments as Percentages of Adjusted Broad Income — Radical Assumptions
Income
Bracket
($00 0 )

Interest on
General Debt

Unemployment
Compensation

Workman's
Compensation

Public-,
Welfare

Retirement
Benefi ts

All Transfer
Payments

.35
.30

4.88
1.31
.83
.63
1.33
1.09
.96
.62
.56
.54
.41
.25
.26
.51

.36
.09
.06
.04
.09
.07
.07
.04
.04
.04
.03

11.56
17.65
12.59
8.29
6.69
2.91
1.24
.83
.64
.40
.29
.19

3.92
4.31
3.14

21.06
23.67
16.82
11.29
9.86
5.15
3.05

Under 1
1-2

2-3
3-4
4-5
5-6
6-7
7-8
8-9
9-10
10-12

12-15
15-25
Over 25

.21
.21
.21

.09
.15
.09
.08
.10

.08
.13
.18
.66

^Includes medical assistance payments.
Note:
Source:

Totals may not add due to rounding.
Tables 9 and 10.

.02
.02
.02

.11

.17

2. 12

1.54
.98
.63
.43
.28
.26
.18
.17
.17
.54

2.01

1.60
1.32
.99
.76
.73
1.92

102
of a dj us t ed broad income.

It

is

c l e a r from t hese t a b l es

t h a t t r a n s f e r payments are 1 ess r e g r e s s i v e
more p r o g r e s s i v e i n the r a d i c a l
ventional

assumpt i ons.

trans f e r payments.

than under con­

The d i s t r i b u t i on o f a d j u s t e d broad

income i s s 1 i g h t l y more equal
because of the r a d i c a l

analysis

( p r o - p o o r ) and

under the r a d i c a l

assumptions

assumptions about the i nc i d e nc e of

These ass umpti ons are more p r o g r e s s i v e

than the c o n v e n t i o n a 1 a s s u m p t i o n s ^ so one woul d expect the
radical

distrib u tio n

of adj usted broad i ncome to be

si i g h t l y more e q u a l .
In s p i t e o f the i ncreased pr o gr es si vi t y and the
reduced share of t r a n s f e r s of 1 ow-income groups i n
radical

the

a n a l y s i s s mi ddl e-i ncome groups f a r e r e l a t i v e l y worse

i n t erms of i n c r e m e n t s

to i ncome from t r a n s f e r s .

This

phenomenon i s

the r e s u l t of the a l 1 o c a t i o n to capi t a l i s ts

of r e l a t i v e l y

l a r g e amounts o f t r a n s f e r s

and the under-

r e p r e s e n t a t i o n o f persons w i t h mi ddl e-i ncomes i n
capi t a l i s t

the

class.

Thus , the importance of di f f e r e n t assumptions about
the r o l e

of the St a t e i s

as sumpt i ons i m p l y

already ap p a r e n t.

The convent i ona1

t h a t t r a n s f e r payments a c t to r a i s e

the

i ncome shar es o f 1 ow-i ncome groups to make the d i s t r i b u t i o n
of i ncome more equa1.
r o l e o f the S t a t e ,

The radi c a 1 assumpti ons about the

on the o t he r hand,

i mply t h a t the S t a t e

acts to redi s t r i bute i ncome i n f a v o r of the u p p e r - i ncome
groups w h i 1 e onl y m a r g i n a l l y a i d i n g persons w i t h very low
incomes .

CHAPTER VI
EDUCATION:

Distributing

A CONVENTIONAL ANALYSIS

the b e n e f i ts from governmental

expen­

di t ur es f o r educat i on i s perhaps the most compl ex p a r t of
this stu d y .

The r ea s on s f o r t h i s

complexity a ris e

f r om t he

problems o f i d e n t i f y i ng the b e n e f i ts o f ed u ca t i on as w e l 1
as i d e n t i f y i ng those who r e ce i ve these b e n e f i t s .

11

is

also i mp o r t a n t to discuss the ass umpti ons on which the
p u b l i c p r o v i s i o n o f educat i on i s

based.

These assumpti ons

should be made e x p l i c i t because they ar e the f oundat i on
upon wh i c h the a n a l y s i s o f ben ef i ts and b e n e f i t r e c i p i e n t s
is based.
Conventi ona1 Assumpti ons About Education
Ri chard Gordon^
about e d u c a t i o n i n
firs t

1i sts and descri bes f o u r assumpti ons

the 1i b e r a 1 ( n e o c l a s s i c a l ) t r a d i t i o n .

assumption is

t h a t educat i on produces or enhances

the p r o du c t i on of human capi t a 1.

Neocl assi c a 1 economi sts

have developed the i dea of human c a p i t a l
1 Gordon,

op.

The

c i t . , pp.

103

1 6 5 - 16 7.

as the c o u n t e r p a r t

104

of physi cal

capital

and t y p i c a l l y use s i m i l a r t e r mi n o l o g y

in di scussi ons o f human and non-human c a p i t a l , e . g . ,
ment, r e t ur n s from i nv e s t me n t , and margi nal
Educati on i s one way of i nvest i ng i n ,
stock o f ,
should,

human c a p i t a l .

productivity.

or i n c r e a s i n g

t h e r e f o r e the i ncome of the r e c i pi ent o f t h i s

which r e s u l t s

and

investment.

A second ass umpti on about e d u c a t i o n i s

that i t

is

in p r o d u c t iv it y

i n c r e a s e s and t h a t the a c h i e v e m e n t of t h e s e s k i l l s
measur abl e by c o g n i t i v e a c h i e v e m e n t t e s t i n g .
ventional

the

Thus, i n v e s t i n g i n human c a p i t a 1

c e t e r i s p a r i b u s , i n c r e a s e the p r o d u c t i v i t y ,

the i mprovement o f s k i l l s

invest­

Thus,

is
con­

a n a l y s e s of educati on o f t e n a n a l y z e the i nputs

to t he e d u c a t i o n a l

pr o c es s

(teachers,

cu rricu la ,

attempt to a l l o c a t e these resources e f f i c i e n t l y
b e tte r outputs

f r om e d u c a t i o n .

The o u t p u t s

etc.)

and

to achieve

o f the education

process are the scores of st udents on s t a n d a r d i z e d a c h i e v e ment t e s t s .
Third,

these analyses assume t h a t the h i s t o r i c a 1

r o l e of educati on "has been and can be t h a t o f g u a r a n t e e i ng
equality

of economi c o p p o r t u n i t y .

behi nd e f f o r t s

t o upgrade t h e q u a l i t y

This i s the reasoni ng
o f gh e tto schools

through enrichment programs and busi ng.
t h a t even though t he r e s t of s o c i e t y acts
re la tive ly

disadvantaged,

The a s s u m p t i o n i s
to keep groups

economic a l l y or s o c i a l l y ,

schools can be a p r i nci pa 1 means of r i g h t i n g
^I b i d . ,

p . 166.

the

the wrongs.

105
1

A f o u r t h assumption i s t h a t ed u ca t i on has played a
r o l e i n i n c r e a s i n g economic and s o c i a l
As Gordon poi nt s o u t , t h i s
t i o ns :

first,

m o b i l i t y over t i me.

i nvolves t h r e e r e l a t e d assump­

t h a t the d i s t r i b u t i o n o f income has become

more e q u a l ; second,

that inter-generational

income groups has i n c r e a s e d ; and t h i r d ,

m o b i l i t y between

t h a t the f i r s t

two

phenomena ar e causa 1 l y r e l a t e d to i ncreasi ng i n t e r g e n e r a 3
t i o n a l mobi 1 i t y in the a c q u i s i t i o n o f e d u c a t i o n .
These assumptions add up to a b e l i e f

in t he i mpor­

tance of educati on because o f i ts e f f i cacy in a c h i e v i n g an
i n t e r r e l a t e d series of o b j e c t iv e s .

It

should be obvious

t ha t the p u b l i c provi si on of educati on f o l l o w s from the
conventi onal

and nor mat i ve t heor y of t he r o l e o f the S t a t e :

the S t at e should i n t e r f e r e w i t h the market system to p r o ­
vi de s e r v i c e s c h a r a c t e r i z e d by e x t e r n a l i t i e s
b ilities

or to r e d i s t r i b u t e

educat i on,

incomes.

and i n d i v i s i ­

With r e s p e c t to

the S t a t e should a c t to guarant ee the equal i ty

of o p p o r t un i t y to rece i ve a good e d u c a t i o n , al t hough 1 i b e r a 1 s
and c o n se r v at i ves d i f f e r about the r o l e which the government
should p l ay in p r o v i d i n g equa 1 i t y

of o p p o r t u n i t y . ^

In s p i t e

of the di sagreement over the r o l e of the S t a t e in the educa­
tional

systern, both 1 i b e r a 1 s and c o n s e r v a t i v e s agree on the

importance of ed u ca t i o n.

The human capi t a 1 o r i e n t a t i on and

termi nol ogy are thus no a c c i d e n t .
3 I b i d . , p.
^Ibi d .,

166.

p . 166.

The co n ve nt i on a l

framework

106
of a p r i v a t e market system r e q u i r e s t h i s

l o g i c to j u s t i f y

the i mport ance at t a c h e d to educat i on and the need f o r
soei a 1 i za t i on o f the costs .
The Benefi ts o f Educati on
A comprehensi ve l i s t o f the b e n e f i ts from educati on
§
has been made by Burton Wei sbr od.
In a d e f i n i t i ve a r t i ­
cle,

Weisbrod d e s c r i b e s

solely

both the b e n e f i t s wh i ch accrue

t o the s t u d e n t and those which ar e e x t e r n a l

student.

to the

Among t he p r i v a t e l y c a p t u r e d benef i ts ar e the

direct f in a n c ia l

r e t u r n , the f i n a n c i a l

opt i on r e t u r n , the

ri on-fi nanci a 1 opt i ons and t he non- market r e t u r n s .
the d i r e c t

financial

return

is

t h e most i m p o r t a n t

s t u d e n t and has a l s o r e c e i v e d t he most a t t e n t i o n
r e s e a r c h e r s who have a n a l y z e d the b e n e f i t s
The f i n a n c i a l
count ed f u t u r e
schooling.

return

is

t o t he
f rom

from e d uca t i on.

measured by the i n c r e m e n t i n d i s ­

income a t t r i b u t a b l e

to a d d i t i o n a l years o f

A l t h o u g h Wei sbrod concedes the d i f f i c u l t y

iso la ting

t he i mp a c t o f a d d i t i o n a l

that th is

return

of i n v e s t m e n t

i s an i n d i c a t o r

sc h o o l i n g ,

of

he argues

of the m a r g i n a l

productivity

in education.

The f i n a n c i a l

option

o p t i o n to o b t a i n a d d i t i o n a l

return

is

t he val ue o f the

yea rs o f school i ng which a r i s e s

because o f t he amount of p r e v i o u s
5

Of t hese ,

education.

Mon-financial

B u r t o n Wei s b r o d , " E x t e r n a l E f f e c t s of I nvest ment
in E d u c a t i o n , " i n Economics o f Educati on 1, e d . by M. Blaug
( Mi ddl esex, Engl and:
Pengui n, 1 9 6 8 ) , pp . ~ 156- 182.

107
options i nc l u d e the o p p o r t u n i t y o f an educated person to
r ecei ve non-monetary j ob r e wa r d s „ and the hedging o p t i o n
which comes from bei ng a b l e to a d j u s t to changing j ob
r e q u i r e me n t s .

Non-market r e t u r n s are bes t e x e m p l i f i e d by

the r e t u r n to 1 i t e r a c y and the r e s u l t i ng i ndependence t h i s
confers on people.
Wei s br od di scusses t h r e e t y p e s o f e x t e r n a l
from e d u c a t i o n :
and b e n e f i t s

residence-related,

to s o c ie ty

beneficiaries
from t he c h i l d

e m p l o y m e n t - r e 1a t e d ,

i n genera 1 .

i n c l u d e t he f a m i l i e s
car e s e r v i c e s

Residence-related
o f s t u d e n t s who b e n e f i t

p r o v i d e d by s c h o o l s 3 t h e

f u t u r e f a m i 1 i e s o f s t u d e n t s who w i l l

benefit

f rom e d u c a t i o n

provided, i n t he home, t he n e i g h b o r s o f s t u d e n t s
b e t t e r b e h a v i o r norms 1 earned i n s c h o o l s ,

because o f

and t a x p a y e r s

the area o f t he s c h o o l s because o f t a x s a v i n g s
reduced c r i me

benefi ts

in

due t o

levels.

Employment- r e 1ated b e n e f i t s accrue to f e l l o w
workers whose p r o d u c t i v i t y , i n co o pe r a t i ve e f f o r t s , w i l l
be i m p r o v e d , and t o e mp l o y er s because of the i nc r e as ed p r o ­
duc t i vi t y o f ed uc a t e d w o r k e r s .
because a l i t e r a t e

benefits

p o p u l a c e can be bet t e r - i n f o r m e d v o t e r s ,

because e d u c a t i o n w i l l
tunities

Soci e t y i n g e n e r a l

t end t o i n c r e a s e e q u a l i t y

of oppor­

f o r members o f soc i ety and because educat i on w i l l

tend to reduce crime and r a i s e tax r e v e n u e s , among o t h e r
benefits.
The e x t e n t and v a r i e t y of educat i onal
raises

benefits

d i f f i c u l t ques t i ons about a s si gni ng val ues to them.

108
For e x a mp l es even i f
c u l t i es i n

valuing external

private benefits
financial

one d i s r e g a r d s

is

still

return, i . e . ,

the c o n s i d e r a b l e di f f i -

benef i ts , the v a 1 u a t i on of

a major probl em.

The d i r e c t

t h e di scount ed p r e s e n t v a 1 ue of

the income r e ce i ved due to addi t i ona 1 ye ar s of s c h o o l i n g ,
is one p o s s i b l e measure because i t
important.

o f t he s t u d e n t s ’ f a m i l i e s
of schooling is

the most

and t h e soci oeconomi c pos i t i on
in order to i s o l a t e

ver y d i f f i c u l t ,

so c o m p e t i t i v e t h a t

produc t i vi t y .

And even i f

the f a c t t h a t e d u c a t i o n i s
raises

probably

But c o n t r o l 1 ing f o r o t he r f a c t o r s such as

abi1i t y , healt h , am b itio n,

market i s

is

t he e f f e c t s

even s u p p o s i n g t he l a b o r

income r e f l e c t s

marginal

t he s e i terns ar e q u a n t i f i a b l e ,
esse ntia lly

an i n - k i n d

program

t he pr obl em o f wei ghi ng the b enef i ts to r e c i p i ents

as d i s c u s s e d i n Chapt er

II.

The Probl em o f V a l u i n g Benefi ts
R a t h er t han a t t e m p t to r e s o l v e
seems p r e f e r a b l e
continuing

to discuss

s t u d i e s of f i s c a l

t he c o s t s and b enef i ts

Although a l l

o f t he p r e v i o u s

i nci dence have used t h i s a s s u m p t i o n , and

Hansen and Wei s b r o d ,
6

it

the pi t f a 1 1 s and drawbacks of

t o use t he a s s u m p t i o n t h a t

o f e d u c a t i o n ar e i d e n t i c a l .

these i ss u e s ,

G

in

t h e i r s tudy o f h i g he r e d u c a t i o n

in

W. Lee Hansen and Burton Wei s brod , "The Di s t r i b ut i on
of Cos ts and Di r e c t Benefi ts of P u b l i c Hi gher Educati on: The
Case of Ca1i f o r n i a ," i n R e d i s t r i b u t i o n to the Rich and the
Poor, e d . by K. E. Bouldi ng and M a r t i n P f a f f ( B e l m o n t , Ca1 . :
Wadsworth, 1972) , pp. 77 - 88 .

109
California,

d i s t r i b u t e d t h e subsi di es r a t h e r than the

b e n e f i t s of educat i on to r e c i p i e n t s , t h e r e can be 1 i t t l e
doubt t h a t the assumption o f the i d e n t i t y of benefi ts and
costs i s tenuous a t b e s t .
One d i f f i c u l t y

i n me a s u r i n g benef i ts as c o s t s

1i es

wi t h the a s s u m p t i o n t h a t cos ts ar e a good measure of t h e
resource i nputs to educat i on .
least

in Michigan,

pupi l

implies

especially
a b ility

if

11

seems f a r - f e t c h e d , a t

to assume t h a t equal

an equal

spent per

a 11 o c a t i on of res ources per p u p i l ,

one a c c e p t s ,

of t eacher s

dollars

f o r exampl e,

( o r the q u a l i t y

t he i d e a t h a t t he

o f o t h e r e q u a l l y p r i ce d

resources) is v a r i a b l e .
But even i f
t here i s

dollars

i mp l i e d equal

not n e c e s s a r i l y any causal

expendi t ures
syst em.
inputs

equal

resources,

r e l a t i o n s h i p between

f o r educati on and the outputs o f the educa t i ona 1

And i f

peop1e reap di f f e r e n t b e n e f i t s

from i den t i c a 1

to school i ng,

both costs and resources are poor
7
measures of the b e n e f i t s o f educati on.
Another r e l a t e d problem i n va1ui ng b e n e f i ts i s
the d i r e c t f i n a n c i a l
school y e a r s .
type i s

tha t

r e t u r n a c c r u e s over a p e r i o d of p o s t ­

The s t a n d a r d p r o c e d u r e i n s t u d i e s o f t h i s

to a l l o c a t e b enef i ts i n

the curren t y e a r ,

in sp ite

of t h e f a c t t h a t benef i ts co n st i t u t e a f l ow over ti me.
i ts f a c e , a 11 oca t i ng a l l

benefits

i n one y e a r i s

an improper

pr o ce du r e, but the concept of c u r r e n t y e a r a l l o c a t i o n i s
7

Mi c h e l s o n , o p . c i t . ,

p.

80.

On

no
merely saying t h a t b e n e f i t s

can be d i s t r i b u t e d a t the

time the asse t (human capi t a l ) i s c r e a t e d , ra t h e r than
wai t i ng f o r the f l ow of benef i ts to begin.
Thus, i t
of b e n e f i t s *

would seem t h a t not onl y i s t h e r e a v a r i et y

caus i ng s e r i ous problems in q ua nt i f y i ng t h e i r

value to r e c i pi e n t s , b u t t h e r e ar e the added problems o f
equati ng cos ts and benef i ts because o f the nat ur e o f the
costs and the tenuous l i n k between c o s t s , r e s o u r c e s , and
o u t p u t s of e d u c a t i o n .
I d e n t i f y i n g Benefit Recipients-Previ ous St udi es
Most of the f i seal
the f a m i l i e s

o f s t u d e n t s as the p r i nci pa l

benefi ts from educati onal
education.

i nci dence st udi es have i d e n t i fed

Ross,

8

11

of the

expendi t u r es , i n c l u d i n g hi gher

Eapen and Eapen,

Musgrave and D a i c o f f ,

recipients

9

Musgrave s e t a 1 .»

Reynolds and Smol ensky*

12

10

,

G i l l e s p i e , ^ 8 t he Tax F o u n d a t i o n , ^ and T u c k e r ^ di s t r i bute
8Ross,

9

op.

c i t .

, p.

Eapen and Eapen, op.

in

' Musgrave, efc al . ,

11
19

c i t .,

Reynol ds and Smolensky,

Tucker,

op.

77.

op. c i t . ,

p.

34.

c i t . , p.

(1),

c i t . , p . 532.

p.

156.

op. c i t . ,

147.

Tax Foundati on , o p . c i t . ,

15

p.

op. c i t . , p.

Musgrave and D a i c o f f , op.

"^Gillespie,
14

58.

12.

p.

31.

Ill
the b e n e f i t s

of spending f o r e l e me nt a r y and secondary

educati on to the f a m i l i e s of students enrol l ed in school
or to f a m i 1 i es w i t h chi 1 dren under 18 years of a g e .
1fi
17
Brownlee
and Si n g e r ,
on the o t h e r hand, d i s t r i b u t e oneh a l f of the benef i ts of el ement ary educat i on to f a m i l i e s
students and o n e - h a l f as g e n e r al

of

g o o d s P on a p e r f a m i l y

basis.

Si nger al so d i s t r i b u t e s secondary e d u c a t i o n expen-

ditures

in

the same way as e l e m e n t a r y , but Brownl ee a l l o ­

cat es 25 p e r c e n t as a g e n e r a l
families

of students.

Adler

good and 75 p e r c e n t t o t he

18

and Conrad

19

distribute

all

educati on expendi t ur es on a per f a m i l y basi s s a rgui ng t h a t
education is

a v a i l a b l e to everyone and t h a t t h er e i s

no

evidence t o s u g g e s t a c o n c e n t r a t i o n of benef i ts by income
class .
Wi t h r e sp ec t to expendi t ures f o r h i g h e r educa t i on,
the a l l o c a t i v e
other l e v e l s

techniques are s i m i l a r to those used f o r

of educati on.

benefi ts to the f a m i l i e s

The t y p i c a 1 method assigns

o f s tudents e n r o l l e d i n col 1 ege .

Reynolds and Smolensky and the Tax Founda t i on do not use
the same assumption f o r hi gher e d u c a t i o n as f o r el ementary
and s e c o n d a r y :
16

17

Brownl ee, op.
Si nger,

^8A d l e r ,
19

i n t h e i r s t u d i e s , spendi ng f o r h i g h e r

op.
op.

C o n r a d , op.

c i t . , p.

c i t . , p.
c i t . , p.

31.

88.

386.

c i t . , pp.

218-219,

112

education i s a l l o c a t e d by the d i s t r i b u t i o n
higher educat i on by income cl ass .
Criticisms

of spendi ng f o r

20

of Previ ous St udi es

These methods o f dis t r i b ut i ng the b e n e f i ts o f
expendi t ur es f o r educat i on i gnore i mp o r t a n t cons i dera t i ons
which,

i n most s t u d i e s ,

Only Ross,

91

G illespie,

were not e x p l i c i t l y
99

and Musgr ave, e t a 1 . ,

examp 1 e , acknowl edge t h a t e d u c a t i o n a l
e q u a l l y r e c e i v e d by a l l
this

children.

pr o bl em by a l l o c a t i n g

mates o f comp 1 e t i on r a t e s
and t he t o t a l

costs

providing

and c o l l e g e

levels.

the f i r s t

for

for

b e n e f i t s may n o t be

G illespie

deals w ith

various

1evels

of education

to a s i n g l e yea r)

asso­

e d u c a t i o n a t t he e l e m e n t a r y , s e c o n d a r y ,

24

Thus, G i l l e s p i e

two t ype s o f p r i v a t e

We i s b o l d :

9 'i

b e n e f i t s on t he b a s i s o f e s t i ­

(not lim ite d

ciated with

discussed.

dire ct financial

im p lic itly

benefits

return

recognizes

id e n tifie d

f r om a d d i t i o n a l

by
years

of

schooling and the v a l u e o f the o p t i on to cont i nue educat i on.
Ross, on the o t he r hand, quest i ons the assumption
that a l l

students

r ecei ve educat i on a l i k e i n e i t h e r quant i t y

20

Reynolds and Smolensky, ( 1 ) , op.
and the Tax F o u n d a t i o n , o p . c i t . , p. 12.
21

99
23

Ross , op.
G illesp ie,

c i t . , pp.
op. c i t .,

Musgrave, e t a l . ,

^Gillespie,

op.

c i t . , p.

55-56.
p.

147.

op. c i t . ,

c i t . , p.

147.

p.

36.

31 ,

113
or q u a l i t y .

Students from low-income f ami l i es * ,

compared

to st udents from u p p e r - i ncome f a m i 1 i e s , r e c e i v e a poorer
q u a l i t y educat i on s r e c e i v e fewer year s o f school i ng and a 1 so
r e c e i v e l o w e r fl ows of e a r n i n g s from comparable amounts o f
educa t i o n .

For these reasons s Ross uses a second a l 1o c a t i ve

method whi ch he f e e l s
fits

to f a m i 1 i es by the di s t r i b ut i on o f st udents by f a m i l y

i ncome.
fits

i s more a c cu r a t e than assi gni ng be ne­

The second method a 11ocates o n e - h a l f of t he bene­

to t he f a m i 1 i es o f st udents and o n e - h a l f to f a m i l i e s

in p ro p o r tio n
proportion

to income.

25
'

By a 11o c a t i ng b en ef i t s i n

to i ncome, Ross assigns some benef i ts to f a m i 1i es

wi thout s t u d e n t s
account f o r

even though his expressed concern i s

the l o w e r r e t u r n r e ce i ved by s t u d e n t s

income f a m i l i e s .

to

from l o w -

There fore, his procedure defin es a

p r o p o r t i on o f expendi t ures as a g e n e r a l

good and a 1 1 ocates
o7

pc

t h a t p r o p o r t i on by income.

Si nger

and Brownlee

s i m i l a r methods , whi ch only p a r t i a l l y

use

r e s o l v e the problem

of 1 ow-i ncome s t u d e n t s .
Reyno 1d ' s and Smolensky' s

28

and the Tax Foundat i on' s

a l l o c a t i o n of h i ghe r educa t i on expendi t ures in p r o p o r t i on to
f a mi l y spendi ng f o r h i ghe r educa t i on deserves di scussi on.
25

Ross, op.

c i t . , p.

58.

O£
Si nger 5 op.
27
2 ft

29

c i t . , p. 8 8 .

Brown 1ee, op. c i t . ,

p.

31.

Reynolds and Smolensky, ( 1 ) ,
Tax F o u n d a t i o n , op.

cit.

op.

cit.

2Q

114
Thi s t echni que wou Id seem to y i e l d q u i t e p r o g r e s s i v e
results

f o r two r e l a t e d r e a s o n s :

(1)

F a mi l i e s sending

c h i l d r e n to p r i vat e schools wo ul d spend consi d e r a b l y more
on educat i on than those w i t h

chiIdren in p u b lic

col 1 eges 9

and the former f a m i l i e s ar e 1 i ke l y to have h i ghe r i ncomes;
and ( 2 ) spendi ng f o r hi gher educa t i on is

likely

to be more

concentrated 1 n upper-income groups because t he t y p e s of
public educational
wealthy f a m i l i e s

in stitu tio n s

are l i k e l y

a t t e n d e d by c h i l d r e n o f

t o be more e x p e n s i v e

(though

not n e c e s s a r i l y provi de a b e t t e r e d u c a t i o n )

t h a n those

a t t e n d e d by c h i l d r e n f r om p o o r e r f a m i l i e s .

The p r o g r e s s i v e

bi as g e n e r at ed by t he s e f a c t o r s

may i n p a r t be because

children

f r om u p p e r - i n c o m e f a m i l i e s a r e more l i k e l y t o
30
attend c o lle g e .
To t he e x t e n t t h a t t h i s e l e m e n t a c c o u n t s
f o r t he p r o g r e s s i v e b i a s o f u s i n g t h e d i s t r i b u t i o n
expenditures f o r higher educations
method i s made more a c c e p t a b l e .

of

Reynol ds and S m o l e n s k y ' s

On b a l a n c e ,

however, i t

i s p r e f e r a b l e to avoid using a l l o c a t i ve t echni ques which
might a 11 oca te benef i ts to those students a t t e n d i ng p r i vat e
col l eges and which could i n c l u d e the a s s u m p t i o n t h a t more
expensi ve education provi des g r e a t e r benef i ts t ha n l e s s
e x p en si ve e d u c a t i o n .
Many st udi es , as p r e v i o u s l y i n d i c a t e d , do not
a l l o c a t e any pa r t of expendi t ures f o r educat i on as general
goods expendi t u r e s .
30

Thi s should be consi dered a shortcomi ng

Hansen and Wei s b r o d , op.

c i t . , p.

81.

115

of these s t u d i e s which may al s o tend to bias t h e i r r e s u l t s .
The di r e c t i on of the bi as i s unci e a r , however, because
t h i s depends on the d i s t r i b u t i o n o f students by income and
the choi ce o f a 11o c a t i v e methods f o r general

goods .

For

example, the n a t i o n a 1 d i s t r i b u t i o n o f chi 1 dren by f a m i l y
income i s

such t h a t d i s t r i b u t i n g b e n e f i t s

1n p r o p o r t i o n

the di s t r i b u t i on o f chi 1 dren by f a m i l y i ncome w i l l
p r o g r e s s i v e r e s u l t s because

to

y i el d

over 50 p e r c e n t o f chi 1dren

bel ong to f a m i l i e s wi th i ncomes i n excess o f $ 1 0 , 0 0 0 ; f o r
higher e d u c a t i o n the benef i ts. w i l l
the same r e a s o n .

31

a l s o be p r o g r e s s i v e

for

I f onl y p a r t of eI ement ary and secondary

expendi t ures were a l l o c a t e d

as general

goods and di s t r i b u t e d

i n propor t i on to i ncome, the res u l t s wo ul d be more p r o g r e s ­
s i v e than ei t h e r a s si gni ng a l l

b e n e f i ts to f a m i l i e s

of

students or assi gni ng p a r t as genera 1 goods on a per f a m i l y
basis.
In addi t i on to the problem of b i a s *

t h e r e ar e good

arguments t o be made f o r assi gni ng a 1 arge f r a c t i o n of
e x p e n d i t u r e f o r e l e m e n t a r y and secondary educat i on as
general

goods e x p e n d i t u r e s .

Most economists agree t h a t

e d u c a t i o n provi des p u b l i c benef i ts i n a d d i t i o n
which a c c r u e to students and t h e i r f a m i l i e s .
31

t o be n e f i ts
Weisbrod c a l l s

Burea u of the Cens us, CPR, Seri es P - 2 0 , Numbers
222 and 2 3 1 , p. 40 and p. 2 1 , r e s p e c t i v e l y .

116
these "ext er na 1 b e n e f 1 t s , " some p a r t o f which accrues to
so c i e t y i n g e n e r a l .
It

is

32

not cl ear what p r o p o r t i on o f expendi t ures

should be assigned as general
are i n d i c a t i o n s

b e n e f i t s , a 1 though t h e r e

from previ ous st udi e s .

For exa mpl e,

Brownlee a l l o c a t e d 50 per cent o f el e me nt a r y educa t i on
spendi ng and 25 p er c ent of spending f o r secondary educat i on on a per f a m i l y b a s i s .
cat es 50
to a l l

percent

fam ilies

35
'

I n one method, Ross a l l o ­

o f both el ementary and secondary spendi ng
proportion

S i n g e r al so a l l o c a t e s
basis.

33

to t h e i r

50 p e r c e n t ,

incomes,^ w h ile

b u t on a p e r f a m i l y

Aaron and McGuire take an approach s i m i l a r to

Brownlee's:

70 p e r c e n t o f e l e m e n t a r y and s e c o n d a r y sp e n d ­

ing and 50 p e r c e n t o f h i g h e r e d u c a t i o n c o s t s a r e a s s i g n e d
OC
as g e n e r a l goods b e n e f i t s .
The r a t i o n a l e wh i c h u n d e r l i e s
both B r o w n l e e ' s and Aa r on' s and McGui re' s methods seems to
be t h a t expressed by Mi 1ton Fri edman:
presumabl y i s

"The s o c i a l

g r e a t e s t f o r the 1 owest l e v e l s

gain

o f school i ng,

where t h e r e is the n e a r e s t approach to unanimi t y about
32
33
34
35
36

Wei s b r o d , op.

c i t .,

p.

177.

Brownlee, op . c i t . ,

p.

31.

Ross, op . c i t . ,

p.

Si n g e r , op. c i t . ,
Aar on and Mc Gu i r e ,

58.
p. 8 8 .
op. c i t .,

p.

916.

117

c o n t e n t , and d e c l i n e s c o n t i n u o u s l y as the l e v e l
n ses.

o f school i ng

„ 37
Thus, i t

seems t h e r e i s ample j u s t i f i c a t i o n

for

a l l o c a t i ng a t l e a s t some p a r t o f spendi ng f o r el ementary
and secondary educat i on as general

goods b e n e f i t s .

is

11

also reasonabl e to assume , s i n c e educat i on i s mandatory
u n t i 1 age 16 i n M i c h i g a n ,

t h a t these expendi t u r e s are

undertaken on beha 1 f o f both st udent s and the p u b l i c .
There i s a n o t h e r more s e r i o u s

s h o r t c o m i n g i n most

p r e v i o u s s t u d i e s wh i ch has a l r e a d y been n o t e d ,
assumption,

im p lic it

t i on e x p e n d i t u r e s
fam ilies,

that a ll

im plications

students

effects

of students

r e c e i v e equal

p r o b 1 em a r e s e r i o u s

to a n a l y z e t he d i s t r i b u t i o n a l
expenditures.

Although

effects

f o r any a t t e m p t

of educational

l ower r e t u r n s
education,
37

f rom d i f ­

and s o c i o e c o n o m i c b a c k g r o u n d s , t h e r e i s

students

indications

no

o f t he d i r e c t i on o f

from non-w hite f a m i l i e s

t han w h i t e s t u d e n t s

and s t u d e n t s

The

t h e dat a a r e n o t p r e c i s e a b o u t t he

doubt t h a t t h e r e a r e c l e a r
t hese e f f e c t s :

t he

among

benefi t s .

o f e d u c a t i on on t h e ea r n i ngs o f s t u d e n t s

ferent ra c ia l

is

i n a l 1 s t u d i e s w h i c h a l 1 o c a t e educa­

by t he d i s t r i b u t i o n

of th is

This

f r om equal

receive

amounts o f

f r o m low s o c i o e c o n o m i c groups

Mi 1 ton Friedman , Capi t a l i s m and Freedom, p.
quot ed i n Ross, o p . c i t . , p. 54.

88,

118
r e c e i v e lower r e t ur n s from ed u ca t i on than students of
higher socioeconomic s t a t u s .

38

These c o n c l u s i o n s ar e s t r o n g l y supported by a
study o f the p u b l i c e d u c a t i o n system i n Mi chigan by
Guthrie, et a 1.

39

The study was designed to t e s t t h r e e

hypotheses about educat i on in Mi ch i gan:

( 1)

of school

di r e c t l y associ ated

services

provi ded to p u p i l s

is

the q u a l i t y

w i t h the socioeconomi c s t a t u s o f t he s t u d e n t s ; ( 2 ) the
h i g h e r t he q u a l i t y o f s e r v i c e s , t h e h i g h e r t h e l e v e l
a c h i e v eme nt a t t a i n e d by a s t u d e n t ;
ac h i e veme nt i s

related

post - school

to achievement in s c h o o l ,

h i g h e r a c h i e v e me n t i n s c h o o l
in p o s t - s c h o o l

and ( 3)

opportunities.

is
40

of

associated w ith

and
"success"

The G u t h r i e s t u d y t e s t e d

t hese hy p ot h es e s f o r Mi chi gan f o r the p e r i od 1967- 68 and
f ound p o s i t i v e

support fo r a l l

Guthrie,

et a1.,

th re e hypotheses.

define

usi ng a number o f v a r i a b l e s :

socioeconomic s t a t u s

occupation,

(SES)

i ncome, e duca t i on

See, f o r example, the s t u d i e s by S t a n l e y H.
M a s t e r s , "The E f f e c t s o f Family Income on Chi 1d r e n ' s
Education:
Some Findi ngs on I n e q u a l i t y o f Opportuni t y , "
J o u r n a l o f Human Resources, V o l . IV ( Spr i ng 1 9 6 9 ) , pp.
158-175; W a l t e r Foge1, "The E f f e c t of Low Educat i onal
A t t a i n m e n t on I ncomes:
A C o m p a r a t i v e St ud y of S e l e c t i v e
E t h n i c G r o u p s , " J o u r n a l of Human Resources, V o l . I ( S p r i n g
1966) ; Randal 1 Wei ss, " The E f f e c t s of Education on the
Ea r n i n gs o f B1ac ks and Whites ," Review o f Economi cs and
S t a t i s t i c s , V o l . 52 (May 1 9 7 0 ) , pp. 15 0- 1 59 .
39

James G u t h r i e , George K1ei n d o r f e r , Henry L e v i n
and R o b e r t S t o u t , School s and I n e q u a 1i t y ( Washi n g t o n :
The Urban C o a l i t i o n , 1969) .
^ 0 I_bj_d • » P •

10.

119

and m a t e r i a l

possessions

in

t he home.

41

They f ound

evi dence t h a t n o t o n l y do h i g h SES di s t r i c t s p r o v i d e b e t t e r
inputs

(building

special

age, teacher q u a l i f i c a t i o n s

pr ograms , e t c . )

a l s o f ound t h a t w i t h i n
pa rities

and s a l a r i e s ,

t han low SES di s t r i c t s 5 b u t t he y
districts

of input q u a lity

t he same k i n d s o f d i s ­

e x i s t e d among s c h o o l s and among

.,
42
pupi1s .
They a l s o c i t e e v i dence t o s u p p o r t t he h y p o t h e s i s
that post-school
school,

even a f t e r c o n t r o l l i n g

The i m p l i c a t i o n
cited

ea rn in g s are r e l a t e d

is

f o r non-school

t h a t t he methods used i n c o n v e n t i o n a l
to a l l o c a t e

benefits

e d u c a t i o n have b i a s e d t h e r e s u l t s
o f r e g r e s s i vi t y and r e d i s t r i b u t i o n
principal

cause o f t h i s

bias

is

43

(elementary,

^ I b i d . , pp.

fisca l

o f spe nd i n g f o r

o f t ho s e s t u d i e s

in favo r

f r om r i c h t o poor .

The

t h e common a s s u mp t i o n o f

per s t u d e n t benefi ts w i t h i n

schooling

variables.

o f t he G u t h r i e s t u d y and o t h e r s p r e v i o u s l y

incidence studies

equal

t o a c h i e v e me n t i n

t he v a r i ous 1 e v e l s o f

s e c o n d a r y , h i g h e r e d u c a t i o n ).

32 - 34 .

42
I b i d . , pp. 8 3 - 8 9 ; "Our most s i g n i f i c a n t f i n d i n g
i s t h a t t he r e l a t i o n s h i p between SES and t he p r o v i s i o n of
school s e r v i c e s h o i ds f o r e n t i r e schoo 1 di s t r i c t s . . . .
S i m i l a r l y , we discovered t h a t i n d i v i d u a l schools whi ch
enrol ' * l a r g e numbers of poor c h i l d r e n t en d t o p r o v i d e f e w e r
and l o we r qua 1 i ty s e r v i ces than s chools whi ch enrol 1 s ma l l
numbers of poor c h i l d r e n .
F i n a l l y , i nequi t i e s among
i n d i v i d u a l s t u d e n t s e x i s t t o t he e f f e c t t h a t poor c h i l d r e n
are provi ded w i t h 1 ower q u a l i t y s e r v i ce s than wea 1 thy
c h i l d r e n , almost r e g a r d l e s s o f the school d i s t r i c t in
which they l i v e , or the school b u i l d i n g which they a t t e n d . "
I b i d . , p. 90.
4 3 1b i d . ,

pp.

154-158.

120
i s p o s s i b l e s o f c o u r s e , t h a t the assumption o f

11

equal

per s t udent benef i ts was used simply because i t was

conveni ent .

However, the data which r e f u t e i t

a v a i l a b l e to a l l

have been

o f the authors of the more r e c e n t s t u d i e s .

The Conventi ona1 Al l o c a t i on of
Benefi ts in This Study
This study w i 11 at t empt to account f o r a t 1 east
p a r t of t h e pr o bl em ca used by t he d i s p a r i t y of benef i ts
r e c e i v e d by s tudents f r om di f f e r e n t r a c i a l
economic backgrounds.
consists

and s o c i o ­

The procedure used i n t h i s study

o f f o u r s t e p s : ( 1)

To t a 1 benef i ts of spending f o r

e l e m e n t a r y and s e c o n d a r y e d u c a t i o n a r e d i v i d e d between
general

benefits

and b e n e f i t s whi ch a c c r u e t o f a m i l i e s

students.

F ifty

be g e n e r a l

goods b e n e f i t s ,

tion

p e r c e n t of t o t a l

used i n o t h e r

because t h i s

and n o n - h i g h school

the d i s c o u n t e d l i f e t i m e
graduates.

hi gh s c h o o l

a common p r o p o r ­

goods b e n e f i t . ^

50 p e r c e n t o f t o t a 1 benef i ts i s

hi gh school

school

is

i s assumed to

st udi es which have a l 1 ocated p a r t of

e d u c a t i o n s p e n d i n g as g e n e r a l
remaining

benefits

of

graduates

The

di vi ded between

graduates by the r a t i o o f

i ncomes o f h i g h school

Re g a r d l e s s

(2)

and non-high

o f t he d i s c o u n t r at e. ,

(those w ith

non-

1-3 y e a r s o f h i g h s c h o o l )

^ F i v e a l l o c a t i v e t e c h n i q u e s ar e used to d i s t r i b u t e
the g e n e r a l goods b e n e f i t s :
( 1) Equal per f a m i l y , (2) I n
p r o p o r t i on to a d j u s t e d broad income, ( 3) O n e - h a l f by i ncome
and one-ha 1f equal per f a m i l y , ( 4) Using the M a i t a l u t i 1i t y
f u n c t i on w i t h the l e a s t p r o g r e s s i v e t ax d a t a , and ( 5)
Usi ng the M a i t a l f u n c t i on wi t h the most p r o g r e s s i v e tax
data.

121
can e x p e c t

to r e c e i v e onl y 85 p e r c e n t o f the 1i f e t i m e

income o f a high school

g r aduat e .

45

Thus , benef i ts to

ar e d i v i d e d between hi gh school and non-high

students

school g r a d u a t e s

so t h a t n o n - h i g h school graduat es r e c e i ve

85 p e r c e n t o f the benef i ts a l l o c a t e d to high school
graduates.

93 p e r c e n t o f

high school

seniors

f r o m high s c h o o l , 93 p e r c e n t of the benef i ts

graduate
accrue t o
accrues

Since

high

to

school

graduates;

non-high school

but

the

graduates

is

7 p e r c e n t which
w o r t h o n l y 85 p e r ­

c e n t as much as t h e b e n e f i t s

which gr aduates

Therefore , graduates

94.05 p e rc e nt

and n o n - g r a d u a t e s
( 3)

school

graduation

1955 t o t h e

by f a m i l y

of

high school

distribution

3- 17 y e a r s

old

enrolled

t age h i g h

school

in

by t h e

yields

distributions

the

students

are a l l o c a t e d
45

Series

number o f

by i n c o me .

graduates

( 4)

seniors

by f a m i l y
school

completion

multi pried

i nc ome o f

high school

are the r e s u 1 1 o f a p p l y i n g

graduates

rates

o f t h e ben ef i t s ,

5. 95 p e r c e n t o f the b e n e f i t s .

receive

The d i s t r i b u t i o n s

non-high

in

receive

receive.

rate

in
in

Burea u of the Census,
P - 6 0 , Number 74, p. 77,

i ncome

i ncome o f c h i l d r e n
1970.

46

The p e r c e n ­

each i ncome b r a c k e t
each i ncome b r a c k e t

school

and n o n - h i g h school

Benefi ts a c c r u i n g

according

the

in

students

of high

by f a m i l y

and

to the

to f a m i l i e s

of

two d i s t r i b u t i o n s

Cu r r ent P o p u l a t i o n R e p o r t s ,

^ B u r e a u of the Census, CPR, p ~ 2 0 , Number 2 2 2 , p.
40, f o r the d i s t r i b u t i o n o f s t u d e n t s ; CPJR, P - 2 0 , Number
185, p. 4, f o r the g r a d u a t i o n r a t e s by f a m i l y i ncome.

122
(high school and non-high school

g r ad u at e s)

of students by

f ami l y i ncome.
There ar e obvious problems w i t h t h i s method of
d i s t r i b u t i ng ben ef i t s .

One di f f i c u 1ty i s t h a t not a l 1

students who begin el ement ar y school
high school
like ly

senior s t a t u s .

is t h a t t h i s

or

Students who drop out are

to be c o n ce nt r at ed i n

c r e a t i n g a r e g r e s s i v e bias

reach high school

1 ow-income f a m i 1 i es

i n the r e s u l t s .

t hereby

Another problem

method o f a 1 l o c a t i o n does not f u l l y account

f or t he l o w e r r e t u r n s

to e d u c a t i o n

r e c e i ved by bl ack s t u ­

dent s as compared to w h i t e s t u d e n t s .

Since bl acks ar e more

like ly

t han whi t es to have dropped out of school bef ore
47
g r a d u a t i o n , ' t h i s method o v e r s t a t e s t he b e n e f i t a c c r u i n g
to b l a c k s t u d e n t s .
Ot h e r shortcomi ngs ar e the use of n a t i onal data and
data f o r y e a r s
achieve*

o t h e r than 1970.

however * i s

more f u l l y

accounts

in directly*

What the procedures does

t he d i s t r i b u t i o n
for

t he e f f e c t s

socioeconomic s t a t u s )

of b e n e f i t s which

of f a m i l y

on school

income (and

achievement

and p o s t - s c h c o 1 s u c c e s s .
The use o f n a t i o n a l
data,

is

as opposed to M i c h i g a n

n e c e s s a r y because o f t h e l a c k of r e l e v a n t da ta

f o r Mi chi gan.
data i s

data*

The di r e c t i on o f t he bi as i ntroduced by t h i s

unknown, but i t
47

Ma s t e r s *

op.

should be r e c o g n i z e d t h a t t h i s
c i t . , pp.

65-66.

123
problem has occurred In anot her s t a t e - l e v e l

study,

48

and

t h a t many of the s tudi es used the

di s t r i b u t i on of chi 1 dren

by f a m i l y income,

d i s t r i b u t i o n o f enrol 1 ed

children.^

r a t h e r than the

Using the d i s t r i b u t i o n o f c h i l d r e n ,

than e n r o l l e d c h i l d r e n ,
benefits

tends to make the d i s t r i b u t i o n

more progress i ve than i t

t i on o f e n r o l l e d

data f o r g r a d u a t i o n r a t e s

therefore w i l l

bias

in

t he p r o c e d u r e used i n

t h e 1965

seniors

t han t ho s e used i n

this

lim ita tio n s,

this

because I t

the i m p a c t o f s o c i o e c o n o m i c s t a t u s
tional

benefits.

uses much
s t u d y and

t he r e s u l t s .
study is

s i d e r e d t o be s u p e r i o r to t h a t used in p r e v i o u s
s p i t e o f dat a

of

the di s t r i bu­

Further,

o f high school

i n t r o d u c e a s mal l

I n sum,

wo ul d be i f

c h i l d r e n were used.

br o a d e r income b r a c k e t s

rather

e x p lic itly

con­

studies,

1n

recognizes

on t he r e c e i p t o f educa­

A more s o p h i s t i c a t e d

procedure woul d not

lump el ement ar y and seco nd ar y s p e n d i n g and wo u l d a c h i e v e
better resu lts

by

reach h i g h s c h o o l
precludes
this

d r o p p i ng the assumpti on tha t a l l
senior status.

student s

However, t h e l a c k o f data

t h e s e r e f i n e m e n t s a n d , t h e r e f o r e , the r e s u l t s o f

study w i l l

t en d to o v e r s t a t e t h e e x t e n t o f r e g r e s s i -

v i t y i n t he i n c i d e n c e o f t he benef i ts f r om s p e n d i n g f o r
education.
in t h i s

Relative

to o t he r st u d i e s , however, the i nci dence

s t u d y of e d u c a t i o n a l
^ E a p e n and Eapen,
49

benef i ts ac c r ui n g to the

op.

c i t .,

p.

75.

Eapen and Eapen, op. c i t . , Brownlee, op. c i t . ,
Musgrave and D a i c o f f , op. c i t . , and Reynolds and Smolensky,
op. c i t .

124
f a m i l i e s o f student s i s more a c c u r a t e f o r two r e a s o n s :
( 1 ) the b e n e f i t s ar e d i s t r i buted by the number of chi 1 dren
e n r o l l e d in sc h o o l ,

r a t h e r than by the t o t a 1 number of

chi 1 dren i n the f a m i l y ;
f ami 1 i es a r e 1 ess l i k e l y

and ( 2 ) students from 1 ow-i ncome
to graduat e from h i g h school a n d ,

t h e r e f o r e , r e c e i ve fewer b enef i ts from educat i on.
a 1 1 o c a t i on o f b enef i ts

partially

The

accounts f o r t h i s

fact.
In the case of the b e n e f i t s
higher education,
st udy d i f f e r s

from s pendi ng f o r

the a 11 oca t i on procedure used in t h i s

from those used i n previ ous expendi t u r e i n c i -

dence s t u d i e s .

Only S i n g e r

50

a 11 oca ted p a r t o f hi gher

educa t i on h e n e v i t s as genera 1 goods, but Aaron and McGuire
also assumed t h a t 50 p er c ent of the benef i ts of spending
for h i g h e r educat i on could be consi dered g e n e r a l
benefits.

51

The assumption i n

this

goods

study i s t h a t onl y 30

percent o f h i g h e r educat i on b e n e f i t s accrue as general
goods benef i t s .

This assumption is

pos i t i on t h a t as the l e v e l

based on F r i e d m a n ' s

o f ed u ca t i on r i s e s , so al so

does t h e l e v e l

o f p r i v a t e l y captured b e n e f i t s .

as s umpt i on f o r

the general

goods b e n e f i t s p r o p o r t i o n of

e l e m e n t a r y and secondary educat i on s p e n d i n g i s
it

is

reasonable

51

50 p e r c e n t ,

t o assi gn 30 p e r c e n t i n the case o f

higher e d u c a tio n .
50 .
Singer,

Si nee the

op. c i t . ,

Aar on and M c G u i r e ,

p . 80.
op. c i t .,

p.

916.

125
The a s s u m p t i o n ,

common to most p r e v i o u s s t u d i e s ,

equal per s t u d e n t b e n e f i t s

of

i n hi gher educa t i on i s r e t a i ned

i n t h i s s t u d y because o f the l ack o f da t a to support an
alternative

hypothesis.

accrue t o o u t - o f - s t a t e

The pr obl em o f b e n e f i t s w h i c h
students

d e a l t w i t h by a s s i g n i n g
o f - s ta t e s t u d e n t s .
whi c h r e f l e c t s
and 1973,

of

m e n t s . l'

Thus

by f a m i l y

9 percent o f the b e n e f i t s

Ni ne p e r c e n t i s

wh a t a p p e a r s

relatively

Again,
■data f o r

the

be d e s i r a b l e

family

student

enroll-

of

if

there

total

benefits

by t h e n a t i o n a l

is

allocated

di s t r i b u t i on

18-24 y e a r s o l d e n r o l l e d a t

and t h e r e m a i n i n g

27 . 3 p e r c e n t

goods b e n e f i t s .

is

a problem i n

t h e use o f n a t i o n a l

di s t r i b u t i on by i ncome o f dependent c h i l d r e n ,

b u t c o mp a r a b l e

benefits

lower o u t - o f - s t a t e

5 3

i s a l l o c a t e d as g e n e r a l

a compromi se e s t i m a t e
1968

i ncome o f c h i l d r e n
level,

to o u t -

b e t we e n

of students

the u n d e r g r a d u a t e

is

t o be a t r e n d ,

63.7 p e r c e nt

to t he f a m i l i e s

in Michigan schools

dat a

for

to modify

Michigan

t he assumpt i on

dat a e x i s t e d f o r

i ncome o r

if

do n o t

data

college

existed

for

of

exist.
equal

graduation

I t woul d
per s t u d e n t
r a t e s by

the p r o p o r t i o n

of

*"UM1ch 1 gan Depa r t me nt o f E d u c a t i o n , R e p o r t on Nonr e s l d e n t E n r o l l i nen t P o l i c i e s , St u d e n t Mi g r a t i on and Reel p r o e 1 t y Ag r e e me n t s " ! L a n s i ng:
19/ 1' ) 7 pp . 2 7 - 2 8 .
This r e p o r t
i s f o r 1 968 when t he p r o p o r t i o n o f o u t - o f - s ta t e s t u d e n t s
i n p u b l i c i n s t i t u t i o n s was 9 . 6 p e r c e n t .
Dat a f o r 1 973 f o r
ma j o r i n s t i t u t i o n s show a p r o p o r t i on o f 8 . 0 8 p e r c e n t :
1973-74 i n s t i t u t i o n a l b u d g e t r e q u e s t s , f u r n i s h e d by James
F. Weber s D i r e c t o r , H i g h e r E d u c a t i o n Management S e r v i c e s ,
Mi c h i g a n D e p a r t m e n t o f E d u c a t i o n , November 20, 1974.
"’ ^Bureau o f t he Census, CPR, P•-20, Number 231 ,
p. 21 .

126
students by f a m i l y income who a t t e n d t w o - y e a r col 1 eges but
do not cont i nue t h e i r e d u c a t i o n .
the assumption of equal

retaining

biases the r e s u l t s
actually

seems probabl e t h a t

11

per s t u d e n t benef i ts

f a v o r o f more r e g r e s s i vi t y than may

in

occur.
Summary
The procedures used in t h i s

the b e n e f i t s

s tudy f o r a l l o c a t i ng

o f spending f o r e l e m e n t a r y

tei o n d i f f e r

from t h o s e used i n p r e v i o u s

account f o r

the

accrue e q u a l l y
assumes t h a t
and t h a t

fact t h a t
to a l l

all

students.

students

students

the b e n e f i t s

do n o t

graduate

allocation

therefore.,

that

p a r t on t h e s o c i o e c o n o m i c
Benefits

status

of spending

e d u c a t i o n a r e assumed t o a c c r u e
general
s p en d i n g

and t o
for

the f a m i l i e s

higher

to t h e f a m i l i e s

but ed by a s s u m p t i o n s
studies

of

this

of

education

of students
similar

of

for

families.

equally

study

likely
The

as most p r e v i o u s

the s t u d e n t s ’

elementary

are

less

from e d u c a t i o n

students.

depend i n
families.

and s e c o n d a r y

to both s o c i e t y

The b e n e f i t s o f

those

and a r e

used i n

distri­

previous

type.

The general

goods p r o p o r t i on s o f s p e n d i n g

e d u c a t i o n are a l l o c a t e d

in

assumed t o a c c r u e p r i m a r i l y

( 70 p e r c e n t )
to

are

recognize,

the b e n e f i t s

to

order

from hi gh school

from low-i ncome f a m i l i e s

procedures,

in

S p e c ific a lly , this

from hi gh- i ncome

have n o t ,

studies

of ed u ca t i on do not

t o do so t h a n s t u d e n t s

studies

and secondary educa­

us i ng f i v e methods :

(1)

for
on an

127
per family b as is,

equal

broad i ncome,

( 3)

by the d i s t r i b u t i on o f a d j us t ed

(2)

by the di s t r i b u t i on o f adj us ted

one-half

broad i ncome and o n e - h a l f e q u a l l y
use o f the M a i t a l
Ro b e r t s ' l e a s t
( 5)

function

u tility

progressive

tax

1 5
usi ng MU( Y) = C/Y ‘ w i t h

incidence

(MU(Y) = C/ Y^ ’

under

i nci dence assumpti ons * and

Roberts' most p r o gr e s s i ve tax

12 shows t h e d i s t r i b u t i o n s

benefits

of

benefits

(specific

local

education

expected from the
54

results

the i n c i d e n c e
benefits

basically

regressive.

progressivity

in

utility

benefits.

expenditures

and g e n e r a l )

and t o t a l

Hartal

( 4) by the

results.

Table

studies,

to f a m i l i e s ,

of

the

of t h e s e e x p e n d i t u r e s .

function

state-level

first

three

assumptions

4 and 5,

used t o a l l o c a t e
in

the

general

lower

is

however, y i e l d

i ncome b r a c k e t b e c a u s e o f

(The mi xed p a t t e r n

the

goods

i n c o me b r a c k e t s

i s a c o n s e q u e n c e o f adj u st i ng the n a t i ona 1 d a t a , w h i c h
larger

i ncome b r a c k e t s ,

study,,)
used i n

Thu s ,

previous

to e q u a l i z e
function,

t he

for

local

distribution

to

with

Ross, o p . c i t . ,
c i t . , p. 107.

1-3 whi ch
education

o f " i ncome.

families

the h i g h e s t

pp.

used i n

use
this

a r e most commonly
expenditures

Us i n g

i n a much less

l ow- i ncome

the f a m i l i e s
54

op.

studies,

however, r e s u l t s

of d i s t r i b u t i o n
vi t y

to t h e i ncome b r a c k e t s

under A s s u m p t i o n s

As

o f speci f i c goods b e n e f i t s

Assumpti ons

the top

the s p e c i f i c

and t h e t o t a l

t wo p r e v i o u s

pattern

u nd e r

of

tend

the Maital

favorable pattern

and even p r o g r e s s i i ncomes.

8 9 - 9 1 s and Eapen and E a p e n ,

128

I n the case o f h i g he r e d u c a t i o n , Tabl e 13 shows
t h a t s p e c i f i c b e n e f i t s are agai n b a s i c a l l y r e g r e s s i v e ,
and,

under a l l

of t o t a l

f i v e general

goods assumptions,

the i n c i d e n c e

hi gher educat i on b e n e f i t s i s al so es s e n t i a l l y

r egr essi v e .

The r e l a t i vel y l a r g e amounts of ben ef i ts

accrui ng to the u p p e r - i ncome b r a c k e t s ar e not s u f f i ci ent
to change the p a t t e r n o f i n c i d e n c e i n those b r a c k e t s .

TABLE 12
The D i s t r i b u t i o n

i ncome
Bracket
($000)

Under 1
1- 2

2-3
3-4
4-5
5-6
6-7
7-8
8-9
9-10
10-12

12-15
15-25
Over 25
TOTALS
MONEY
AMOUNTS
($0 0 0 )

of

Local

Education

Expenditures

Total
S p e c i f i c 6 gods
Benefits^-

{ 36 . 6 8 )
9.39)
( 5.15)
11.36)
[ 8.52)
( 8.06)
{ 6.67)
( 5.47)
( 4.49)
( 3. 97)
( 2. 59)
( 2 . 10)
10.68 (
.93)
2 . 68 (
. 31 )
99. 99
2.44)
2.62
3. 00
."i
L . d6
6 . 54
5. 94
7. 30
7. 83
8.51
8.61
8. 36
11 . 93
13.73
r\ s

944, 850

Assumpt i on 1

4.
5.
3
5
5
5
Si

6

7
7
7
11

13
13
3
100

45
09
84
51
10
85
28
04
39
17
69
46
64
42
00

1 , 8 8 9 , 700

(124
( 31
( 17
( 19
( 14
( 12
( 10
( 9
( 7
( 6
( 5
( 4
( 2
(
( 4

34)
85)
47)
48)
62)
92)
70)
05)
71 )
81 )
07)
12)
37)
80)
88)

--

Conventional

Local

Education

1 40 ( 3 9 . 0 5 )
1 89 ( 8 . 5 2 )
1 66 ( 7 . 5 9 )

6
6

6

n

14
19
11
100

97
82
75
35
16
65
75
58
82
38
82
00

]

Benefits’

Assurnpti on

3
3
4
5

Analysis

(13.78)
(10.96)
(10.50)
( 9.11 )
( 7.91 )
( 6.93)
( 6.41 )
( 5.03)
( 4.54)
( 3.37)
( 2.75)
( 4.88)

Assumption 3
2. 92
3. 49
2.75
4. 79
4.46
5. 30
5.81
6. 60
7. 02
6.96
11 .64
14. 13
16.51
7. 62
100.00

(81.69)
(21.85)
(12.53)
(16.63)
(12.78)
(11 .71 )
( 9.90)
( 8.48)
( 7.32)
( 6.61)
( 5.05)
( 4.33)
( 2.87)
( 1.77)
( 4.88)

TABLE 12 ( c o n t ! d . )
I ncome
Bracket

Total

($000)

Assumpt i on 4

Under 1
1-2

2-3
3-4
4-5
5-6
6-7
7-8
8- 9
9-10
10-12

E d u c a t i o n Benefi ts

(37.53)

(10.28)
( 6.19)
3. 65 ( 1 2 . 6 7 )
3. 47 ( 9 . 9 7 )
4. 33 ( 9 . 5 6 )
4. 83 ( 8 . 2 4 )
5.51 ( 7 . 0 7 )
5. 90 ( 6 . 1 5 )
6 . 03 ( 5 . 7 3 )
10.17 ( 4 . 4 1 )
13. 43 ( 4 . 1 1 )
18. 93 ( 3 . 2 9 )
19.41 ( 4 . 5 2 )
CO

00

100.00

*3-

12-15
15-25
Over 25
TOTALS

1.34
1 . 64
i . 36

Local

Assumption 5
1 . 34
1 .65
1 .36
3. 65
3.47
4. 33
4. 84
5.52
5.92
6. 04
10.20

13.47
18.97
19. 24
100.00

(37.57)
(10.31)
( 6.21 )
(12.68)
( 9.98)
( 9.57)
( 8.25)
( 7.09)
( 6.17)
( 5.74)
( 4.43)
( 4.13)
( 3.29)
( 4.48)
( 4.88}

TABLE 12 ( c o n t ' d . )

1 Figures

in parentheses are percentages of adj ust ed broad income from Table 6 ;
o t he r f i g u r e s are percentages of the money amounts shown a t the bottom of the
2 ta b 1 e .
3See t e x t f o r e x p l a n a t i o n of the d i s t r i b u t i o n of s p e c i f i c goods b e n e f i t s .
See Chapter 11 f o r e x p l a n a t i o n of Assumptions 1 - 5 .
Source: Bureau of the Census, Current Popul at i on R e p o r t s , Seri es P- 20, Numbers
185 and 222, p. 4 and p. 40; CPR, P- 60, No. 74, p. 77.

TABLE 13
The Di s t r i but i on of Higher Education Expendi t ures - Conventional Analysis^
Income
Bracket
($000)

3

S p e c i f i c Goods
Benefits^

Under 1

1. 07

1-2

1 .22

2-3
3-4
4-5
5-6
6-7
7-8
8- 9
9-10
10-12

12-15
15-25
Over 25
TOTALS
MONEY
AMOUNTS
($0 0 0 )

(
{
(
(
(
(
(
(
(
(
(
(
(

.92
2. 98
2.71
4. 8 8
5.24
6. 25
6. 99
6. 78
14. 79
17. 03
23 . 29
5. 84
99. 99 (
211 ,229

3 35)
86)
47)
1 16)
87)
1 21 )
1 00)
90)
81)
72)
72)
58)
45)
15 •
55 S

Tot a l Higher Education B e n e f i t s
----------------------------------------------------------------Assumption 1
Assumption 2
2.63
3.01
2.27
3. 49
3.17
4. 7 4
5. 09
6. 04
6. 74
6.54
13. 79
15.87
21 .28
5. 34
100.00

301 ,756

75)
3 01)
1 65)
1 93)
1 45)
1 67)
1 38)
1 24)
1 12)
99)
96)
78)
59)
;
20
)
78)
11

.80
1 .09
.97
2.51
2.41
4. 08
4. 53
5.51
6. 29
6. 29
13. 73
16. 69
24. 72
10. 38
100.00

3.58)
1 . 09 )
. 70 )
1 . 39 )
1. 10)
1 . 44 )
1 . 23)
1.13)
1 . 05 )
. 95 )
. 95 )
. 82 )
.69)
.39
. 78 )

TABLE 13 ( c o n t ' d . )
Tot al

Income
Bracket
($000)

Assumption 3

Under 1

1 .71
2. 05
1 .62
3. 00
2. 79
4.41
4.81
5. 78
6. 52
6.41
13. 76
16. 28
23. 00
7. 8 6

1-2

2-3
3-4
4-5
5-6
6-7
7-8
8-9
9-10
10-12

12-15
15-25
Over 25
TOTALS

100.00

7.66)
2.05)
1.18)
1.66)
1 . 28 )
1 . 56 )
1 .31 )
1.19)
1 . 09)
. 97 )
. 95 )
. 80)
. 64)
. 29)
• 78

Higher Education Be ne f i t s '
Assumption 4
.77
.94
.78
2.31
2 . 20
3. 83
4. 22
5. 12
5. 85
5. 86
12.88

15. 86
24. 45
14. 93
100.00

3. 43)
.94)
.57)
1 . 28)
1 .01 )
1 .35)
1.15)
1 . 05 )
• 97)
.89)
.89)
. 78)
.68)
• 55

.78

Assumption 5
• 77
.95
.79
2.31
2.20

3. 83
4. 2 2
5.13
5. 86
5. 86
12. 89
15. 88
24. 48
14.83
100.00

(
(
(
(
(
(
(
(
(
(
(
(
(

3.44)
.95)
. 57)
1 . 28 )
1 .01 )
1 . 35 )
1.15)
1 . 05 )
. 98 )
. 89)
. 89 )
. 78 )
.68)
.55)
. 78 )
(

TABLE 13 ( c o n t ' d . )

2
3

F i g u r e s i n parentheses are percentages of adj ust ed broad income from Table 6 ;
ot her f i g u r e s are percentages of the money amounts shown a t the bottom of the
table,
See t e x t f o r e x p l a n a t i o n of the d i s t r i b u t i o n of speci f i c goods benef i t s .

See Chapter n
f o r e x p l a n a t i o n of Assumptions 1- 5 .
Source: Bureau of the Census, Current Popul at i on Report s, Seri es P - 2 0 , No.
p . 21 .

231,

134

CHAPTER V I I
A RADICAL ANALYSIS OF
EDUCATIONAL EXPENDITURES

The p r e v i o u s

c h a p t e r r e p r e s e n t e d a neoc1assi ca1

a n a l y s i s of e d u c a t i o n a l

expendi t ur es s and i n c l u d e d a d i s ­

cu s s i o n of f our a s s u m p t i o n s about e d u c a t i o n .

From a

neoclassi cal p e r s p e c t i ve t o w a r d educat i on , these assumptions
have not been met by the e d u c a t i o n a l
Thus,
it

system i n

this

country.

the e d u c a t i o n a 1 s t r u c t u r e can be s e v e r e l y f a u 1 ted when

i s e v a l u a t e d by i ts a b i 1 i t y to s a t i s f y

But i t

those assumpt i ons.

al so c o u l d be consi dered a success when i t

is

eval uated by i ts c o n t r i but i ons toward t h e m a i n t e n a n c e and
rei nforcemen t of the exi s t i ng soci oeconomi c sys tern.
Thi s c ha pt e r begins w i t h a r adi c a 1 c r i t i q u e o f the
liberal

assumptions about educat i on and pr esent s an a l t e r ­

native an alysis

o f the r o l e educat i on pl ays i n our soci e t y .

The di f f e r e n c e s

and s i mi 1a r i t i es between the conventi onal

and r a d i c a l

analyses are discussed and an a l t e r n a t i v e

method of i denti f y i ng b e n e f i t s
sugges ted.

135

and b e n e f i t r e c i p i ents is

136
The Radi cal
The f i r s t

Critique^

c o n v e nt i on a l

assumption about educat i on

is t h a t educa t i on improves ski 1 1 s and 3 hence,

t he economic

o p p o r t u n i t i e s o f the poor and the underski 11e d .
upon which t h i s
t i on i mp l i e s

assumption r e s t s

i n c r e a s e d i ncome.

t r u e , as t h e d i scussi on i n
More i m p o r t a n t ,
which r e f u t e s

howe ver ,

is

One basis

t h a t i ncreased educa­

To some e x t e n t t h i s

the previ ous chap t e r i ndi c a t e s .

is

t he e v i d e n c e f o r c e r t a i n

the assumpt i on.

these groups

(non-whites

assumpt i on o f

But i t

increased o p p o r t u n itie s
either

it

is

fa ir

n o t met by our e d u c a t i o n a l
The second a s s u mp t i o n i s

measure s k i l l s
of students.

is p r e c is e ly

is

the
to

t h a t the

directed.

Since

do n o t g r a d u a t e f r o m

or e n t e r col l ege a t the same r a t e s as m i d d l e -

and u p p e r - c l a s s w h i t e s ,
t i on i s

2

and l o w e r - c l a s s w h i t e s )

b l ac k s and l o w e r - c l a s s w h i t e s
hi gh school

t h a t earn-

educat i ona I a t t a i n m e n t unless

s t u d e n t has c o mp l e t e d c o l l e g e .

groups

For b l a c k s and p e r s on s from

low s o c i o e c o n o m i c gr oups, the evi dence i n d i c a t e s
ings do not v a r y w i t h

is

which vv111
P roductivity

from I mproved a b i l i t i e s

t o say t h a t t h i s

assump-

syst em.

t h a t achi evement t e s t s

tend t o i n c r e a s e t he p r o d u c t i v i t y
increases

ar e assumed t o r e s u l t

to " r e a d and r eason. "

1

Radi c a 1

This s e c t i o n draws h e a v i l y from the di scussi on by
Gordon, op. c i t . , pp. 1 6 7 - 1 7 1 , and 1 7 8 - 1 8 0 .
2

3

I b i d . , p.

18 0 1 Weiss,

G o r d o n , op.

c i t . , p.

op. c i t .
1 79.

137
critics.,

on the o t h e r hand,

contend t h a t i t

reading and r e a s o n i n g s k i l l s
Rather,

it

producti vi t y .

i n c u l c a t e student s
Schools,

s c r e e n i ng f u n c t i o n

habits,

t h a t improve p r o d u c t i v i t y .

i s the behavi or and m o t i v a t i o n a l

whi ch s c h o o l s

relies

t r a i ts wi t h

t h a t l ead to post - school

th e re fo r e , perform a t r a i n i n g

on t he a b i l i t y

to i n s t i l l

i n s t u d e n t s good work

res pons i veness t o mo n e t a r y i n c e n t i v e s

success because t he s e t r a i t s
i n t he w o r l d o f w o r k .

whites,

For many o t h e r s ,

pr o c e s s

is a

howe ver ,

t he s e

t o l e a r n and accept — because

they ask non-whi t e s , f o r exa mpl e,

for

this

a r e n e c e s s a r y to do wel l

are not o n ly d i f f i c u l t

which d i s c r i m i n a t e s

and a c c e p ­

economic syst em.

For many, p a r t i c u l a r l y

s ufficie nt

and

f o r the m a r k e t systern, a f u n c t i o n which

tance of t h e p r e v a i l i n g

traits

i s not the

to cooperat e i n a sys tern

a g a i n s t t h e m- - b u t t h e y ar e a l s o n o t

t h e s e gr oups

t o a c h i e v e success comparabl e

to middle™ and u p p e r - c l a s s w h i t e s .
The t h i r d

a s s u mp t i o n i s

t h a t schools have h i s t o r i -

ca 11 y h e l p e d t o e q u a l i z e o p p o r t u n i t i e s
do so now.

The r a d i c a l

never p l a y e d t h i s
been and i s

role;

contention
rather,

now t o s o l i d i f y

is

4

t h a t s c h o o l s have

the f u n c t i o n

t he s t r u c t u r e

c a t i o n w h i l e a l l o w i n g a few " g i f t e d "
The e v i d e n c e c i t e d

and t h e y c o n t i n u e to

o f s c h o o l s has

of class s t r a t i f i ­

exceptions

to succeed.^

i n the previ ous c h a p t e r , p r i m a r i l y

This p o i n t was s u g g e s t e d by M i t c h e l l

Stenge 1.

the

138

Gut h r i e, e t a l . ,
t hi s i ss ue .

study,

5

supports the r a d i c a l

posi t i on on

B e t t e r educat i on accrues to students on the

basis of socioeconomic s t a t u s and, f o r st udent s from high
soci oeconomi c s t a t u s groups, r e s u l t s
success.

Thus, t h i s assumption,

system o f educat i on in the U.S.

in g r e a t e r p os t - sch o ol

t o o,

is

not met by the

and i n Mi chi gan.

The f o u r t h ass umpti on i s

tha t schools a re i ncr e as -

i ngi y b e t t e r a b l e to fu 1 f i 11 the e q u a l i zi ng f u n c t i o n because
s o c i e t y i s becoming more e d u c a t i o n a l l y mobi1e .
argue t h a t ,

in f a c t ,

the e d u c a t i o n a l

more i m p o r t a n t i n d e t e r m i n i n g c l a s s

syst em i s

Ra di c a1s
becoming

s t r u c t u r e and i s

f o r e becomi ng a more i m p o r t a n t f o r c e a g a i n s t s o c i a l
Ivan I l l i c h

supports

of e d u c a t i o n w i t h

this

contention

the h i s t o r i c a l

there­
mobi 1 i t y .

by comp ar i ng t he r o l e

r o l e of r e l i gi o n :

School has become the w o r l d r e l i g i o n o f a
moder ni zed p r o l e t a r i a t , and makes f u t i l e pr o mi s e s
o f s a l v a t i o n to the poor o f t h e t e c h n o l o g i c a l age.
The n a t i o n - s t a t e has adopt ed i t , d r a f t i n g a l l
c i t i z e n s i n t o a graded c u r r i c u l u m 1 ea di ng to
s e q u e n t i a l d i pl oma s not u n l i k e the i n i t i a t i o n
r i t u a l s and h i e r a t i c p r o m o t i o n s o f f o r m e r t i m e s .
The modern s t a t e has assumed t he d u t y t o e n f o r c e
the j u d g me n t o f i t s e d u c a t o r s t h r o u g h w e l l - m e a n t
t r u a n t o f f i c e r s and j o b r e q u i r e m e n t s , much as d i d
the Spani sh k i n g s who e n f o r c e d t he j u d g m e n t s o f
t h e i r t h e o l o g i a n s t h r o u g h the c o n q u i s t a d o r s and
1 nq ui s 1 t i o n . D
The a s s u m p t i o n t h a t t e c h n o l o g i c a l

requi rement s have

led to i n c r e a s e d demand f o r a more educated work f o r c e i s
' Guthrie,

et a 1 .,

op.

c i t.

°"Why We Must A b o l i s h S c h o o l i n g , " New York Review
of Books ( J u l y 7, 1 9 7 0 ) , quoted i n Gordon, op. c i t . , pp.
168-169.

139
probably v a l i d

in an h i s t o r i c a l

c o n t e x t w h i c h i nc l udes the

changes in technology and methods of p r o d u c t i o n wh i ch
occurred i n the 19th c e nt ur y and the f i r s t
century.

However, r a d i c a 1 c r i t i c s

assumpt i on t h a t t e c h n o l o g i c a l
pal

reason f o r

t he r i s e

demand f o r e d u c a t i o n a l

h a l f of the 2 0 th

have c h a l l e n g e d t he

req uiremen ts are the p r i n c i -

o f mass e d u c a t i o n and t h e i n c r e a s e d
credentials.

Rather,

radicals

con­

tend t h a t t h e need f o r mass e d u c a t i o n a r o s e because o f t h e
need o f c a p i t a l i s t s
co n tr'i

for

and p o l i t i c a l

as an e f f e c t i v e

"a mechanism t o i n s u r e s o c i a l

s ta b ility ."

in s titu tio n

7

E d u c a t i o n was p e r c e i v e d

wh i ch c o u l d p e r f o r m t he s o c i a l i ­

zation fun c tion s

t h a t had p r e v i o u s l y been t he r e s p o n s i b i 1 i t y
O
o f t he f a m i l y and t he c h u r c h .
I v o r Berg

9

has c r i t i c i z e d

t i o n t h a t t he cha ng i n g
an i n c r e a s i n g l y

t he human c a p i t a l

technology i n

e d u c a t e d work f o r c e .

the economy r e q u i r e s
Berg's

ing t h e t e n - y e a r p e r i o d of 1950 t o I 9 6 0 ,
educational
than j o b s ,

assump­

study,

finds

that

cover­
" . . .

a c h i e v e m e n t s were c h a n g i n g much more r a p i d l y
however much c o n c e s s i o n

i s made to t e c h n o l o g i c a l
1 rs

and o t h e r i n f l u e n c e s

on work

.

. .

."

Berg i s

saying

7

that

Samuel Bo wl e s , "Unequal Educati on and the Reproduct i o n o f t he S o c i a l D i v i s i o n o f Labor , " Review of Radi cal
P o l i t i c a l Economics, Vo l . 3 ( F a l l , 1 9 7 1 ) , p . ~ 4.
^ I b i d . , p , 4.
9
(Boston :

E d u c a t i o n and Jobs:
The Great T r a i n i n g Robbery
Beacon Press , 1 971]".

1 0 1b i d . ,

p.

80.

140
e d u ca t i o na 1 requi rements f o r j ob performance a r e 1 ower than
the l e v e l s of educati on being a t t a i n e d by new w o r k e r s .
Berg' s data and analyses al s o 1 end support to the
posi t i on t h a t educat i onal achi evement. i s used by empl oyers
as a screeni ng devi ce to f i n d employees who meet n o n - j o b functional

requirements

r a t h e r than j o b - r e l a t e d

needs.

In

his a n a l y s i s o f 1950 and 1960 data on educa t i onal a t t a i nment
and t he r e q u i r e m e n t s o f s p e c i f i c j o b s , Berg f o u n d t h a t 3 as
a g e n e r al

rule,

t he e d u c a t i o n o f j o b h o l d e r s

educational

requirements

Further,

interviews

in

exceeded t h e

needed t o p e r f o r m t h e j o b s .

11

of personnel managers, Berg found

t h a t empl oyer s were e x p l i c i t

in t h e i r admissions

that:

. . . di pl omas and degrees were a good t h i n g , t h a t
t h e y were used as s c r e e n i n g d e v i c e s by w h i c h
u n d e s i r a b l e empl oymen t a p p l i c a n t s could be i d e n t i f i e d , and t h a t the c r e d e n t i a l s sought were i n d i c a ­
tors o f p e r s o n a l commi tment to 'good mi d d l e - c l a s s
v a l u e s , 1 i ndustri ousness., and seri ousness of
p u r p o s e , _as w e l l as s a l u t a r y p e r s o n a l habi ts and
s ty 1 es o ' 2
The i m p l i c a t i o n

of increasing

educational

require­

ments f o r j o b s which do not demand as 1 arge an amount of
education is

t h a t employment and s o c i a l

increasingly

11mi t e d ,

jobs were b e i n g f i l l e d

11
12

"mi d d l e - 1 e v e l "

by " b e t t e r - e d u c a t e d "

p e o p l e , and

in

t he number o f " l e s s - e d u c a t e d "

into m i d d l e - l e v e l

jobs.

I b i d . , Ch ap t e r I I I .
I b i d .,

p.

78,

13 I b i d .» p.

59.

be

Berg d i s c o v e r e d t h a t

t h a t t h e r e was a r e d u c t i o n
workers ad v a n c i n g

m obility w ill

emphasi s a d d e d .

13

141
It

i s c l e a r t h a t c o n t i n u a t i o n of t h i s

t h a t blacks and o t he r r e l a t i v e l y
soci et y w i l l

t r e nd means

disadvantaged groups in

cont i nue to f i n d l i m i t e d opportuni t i es f o r

upward mobi1 i t y .
ab l e t o a f f o r d

These groups ar e p r e c i s e l y

those least

s c h o o l i n g n e c e s s a r y t o meet e m p l o y e r r e q u i r e ­

ments;, and t h e y are t he gr oups wh i c h have t y p i c a l l y
both l o w e r l e v e l s o f s c h o o l

p e r f o r ma n c e and f e w e r y e a r s of

s c h o o l i n g t han m i d d l e - and u p p e r - c l a s s w h i t e s .
importance o f s c h o o l i n g
rather

than

alleviates,

achieved

i n t he economy w i l l
in eq ua litie s

Thus , the

exacerbate„

i n income and s o c i a l

class m o b i l i t y .
The p r e c e d i n g d i s c u s s i o n
e ffe c t of education,
the e d u c a t i o n a l

but there is

patterns

and o t h e r

radical

another e s s e n t i a l

o f class
c ritic s

its

t o p r e s e r v e and

d iffe re n tia tio n .

of education

function

ance o f t he s t a t u s quo,

and o

a n o t h e r re 1 a t ed a s p e c t of

systern t h a t a l s o a c t s

reinforce

words , ” . . .

d e a l t w i t h one i m p o r t a n t

14

have n o t e d ,

of education is

i.e .,

to teach a c c e p t ­

le g itim iza tio n ,

o f trie p r e v a i l i n g

main i n s t i t u t i o n s

As Bowles

in Miliband's

economi c and s o c i a l

order,

and v a l u e s . "

One means o f a c h i e v i n g a c c e p t a n c e o f t h e st a t u s quo
is to t a i l o r
s c ho ol s

t he i n t e r n a l

to p a r a l l e l

structural

t he s o c i a l

a r r a ng eme nt s

relations

in

o f t h e work process

14

See, f o r example, Bowl es, op. c i t . . Mi 1i band, The
S t a t e , op. c i t . , p. 244, and Baran and Sweezv, o p . c i t . ,
pp. 306~-322.
--------1R

Mi 1i b a n d , The S t a t e , op.

c i t . , p.

244.

142
whi ch students from d i f f e r e n t cl asses are l i k e l y
Bowles poi nt s out t h a t di f f e r e n c e s

to e n t e r .

in the i n t e r i o r s t r u c ­

t ures of schools and the c ont ent o f school i ng ar e r e a d i l y
apparent and t h a t these di f f e r e n c e s
social

cl asses of the student s who a t t e n d the s c h o o l s . ^

I t i s not s u r p r i s i n g ,
study

18

correspond to the

t h e r e f o r e , t h a t the G u t h r i e ,

et a1.

found t h a t c h i l d r e n from high socioeconomic s t a t u s

backgrounds had b e t t e r e d u c a t i o n a 1 i nputs and achi eved
b e t t e r success than st udents from f a m i l i e s

of low soci o-

economi c s t a t u s .
Benefi ts and Benefi t Reci pi ents
11

is

p o s s i b l e to consi der the cos ts i ncurred in

the p r o v i s i o n of e d u c a t i o n as soci a 1 l y necessary c o s t s , as
t hese were d ef i ned i n Chapter I I I .
education

is

i mpor t ant to provi de 1 i t e r a c y , s k i l l s ,

i ng, knowl edge and s o c i a l i z a t i o n
is

In any advanced soci e t y ,

i m p o r t a n t , however,

to members o f s o c i e t y .

to recogni ze t h a t

put s o f t he ed u c a t i o na l

t r a i n11

t he goals and o u t -

syst em in t h i s country (and M i c h i ­

gan) a r e not n e c e s s a r i l y those wh i ch would o bt a i n in a
d i f f e r e n t s o c i o e c o n o mi c s y st em.
11

t he s k i l l s
16

i s appar ent from the precedi ng di s cuss i on t h a t
and t r a i n i n g
Bowl es,

1 7 1 bi
18

d.,

op.
p.

Guthrie,

aspects of educat i on in t h i s

c i t .,

p.

14.

16.
et a1.,

op. c i t .

count r y

143
are f r e q u e n t l y less i mp o r t a n t to employers than less
t a n g i b l e t r a i ts such as acceptance of p r e v a i 1 i ng v a l u e s ,
au th or!ta rian social

relations

and "proper" work h a b i t s .

These types of persona 1i ty t r a i nts and beh av i o r modes are
necessary f o r success i n , and the smooth f u n c t i o n i n g o f ,
the modern bur eaucr aci es o f corporateons and government.
As Bowles n o t e s , ".
ductive hierarchy
p o litica l

.

. pos i t i ons of c o n t r o l

19

Since t h e upper c l a s s

pr eponder ance o f power i n

determining

and a c c e p t e d beha vi or p a t t e r n s ,

outputs
with

the p r o ­

tend to be as s o c i a t e d w i t h p o s i t i o n s of

influence."

not only t he r i g i d

in

it

is

t he p u b l i c

t he

inte rest

not s u r p r i s i ng t h a t

s t r u c t u r e of e d u c a t i o n ,

o f t he e d u c a t i o n a l

exerts

but a l s o the

i n s t i t u t i o n s , coi ncide so nea t l y

t he needs and des i res of c o r p o r a t e capi t a l

and the

State.
It

is

necessary,

t h e r e f o r e , to e v a l u a t e t he b e n e f i ts

of e d u c a t i o n

in the l i g h t of t h i s

framework.

If

students

do not need,

f o r j o b performance pur poses, the amounts and

.j

ki nds o f e d u c a t i o n r e q u i r e d by e m p l o y e r s ,
er r oneous
in t h i s

t o assume t h a t

society

even l a r g e l y ,
education

in te nd ed to y i e l d

to students.

i s a work f o r c e

the c a p i t a l i s t
existing social
19

is

t he p u b l i c

it

wo ul d be

p ro v is io n of education
benefits

The p r i n c i p a l

solely,

b e n e f i t of

i ncul cat ed w i t h the v a 1 ues o f

cl ass and a wor k f o r c e wh i c h accepts
relations

B o w l e s , op.

or

the

of product i on i n our capi t a l i s t

c i t . , p.

26.

144
system.

In p a r t ,

the needs o f c a p i t a 1 i s t s , r a t h e r than

s t u d e n t s , ar e met by the systern o f educat i onal

i nsti tu -

tions.
could be a r gu e d , of c o u r s e , t h a t student s bene­

11

fit

by vi r t u e o f t h ei r empl o ya bi 1 i t y and the increments

to i ncome as s o c i a t e d w i t h addi t i o n a 1 years o f school i ng.
But t h i s ar gument ignores the c o n t en t i o n t h a t educat i on
does not encour age c r e a t i v i t y . ,

spontanei ty or i ndi vi dua 1

freedom except as t h e s e f a c t o r s
differences.

r e i n f o r c e existing class

For the most p a r t , conformi ty o f thought and

b e h a v i o r and acceptance of r i g i d behavi or modes ar e rewarded
instead.

The s o c i a l

relations

of schooling p a r a lle l

of t he c o r p o r a t e bureaucracy and a re a l i e n a t i n g
than l i b e r a t i n g

or f u l f i l l i n g .

0(1

t ho s e

rather

When t he needs o f s t u d e n t s

are mol ded t o the needs of the S t a t e and c a p i t a l i s m . ,

rather

than v i c e v e r s a , i f

can

is

d iffic u lt

t o see how s t u d e n t s

be j u d g e d the p r i m a r y r e c i p i ents of the b e n e f i ts o f educa­
t i on .
Thus,
educat i onal

it

i s ass umed t h a t the p r i mary benef i ts of

spending a r e a c o o p e r a t i v e and d i s c i p l i n e d

work f o r ce and a popul ace which accepts and supports the
e x i s t e n c e and m a i nt e n a n c e of the cap i t a 1 i s t sys tern i n
U.S.

The p r i n c i p a l

are c a p i t a l i s t s ,

the

r e c i pi ents o f the b e n e f i ts of educat i on

as capi t a 1i s ts are d e f i ned i n Chapter I I I .

Some be n e f i t s must, however, be assi gned to st udents and
20

See He r b e r t G i n t i s , " R e p r e s s i v e School i ng as
Producti ve Schooli ng, " i n Gordon, op. c i t . , pp. 208- 213 .

145
their families
skills

to account f o r the r e c e i p t o f such basic

as readi ng and a r i t h m e t i c .

1 earned

These s k i l l s

could be

i n o t h e r envi ronments whi ch woul d encourage

i ndi vi d u a l i t y r a t h e r than repress i t , as t he school system
currently

does.

Therefore,

the p r o p o r t i o n of b e n e f i t s

accrui ng to student s and t h e i r f a m i l i e s
percent.

is

1imi ted to 40

(These b enef i ts amounted to 50 p e r c e n t of t o t a l

benefi ts i n

the conventi onal

analys i s . )

The r a t i onale f o r

assi gni ng t h e preponderance of b e n e f i ts to capi t a 1 is ts
p er c ent ) was d e v e l o p e d i n

the p r e c e d i n g

radical

a n a l y s i s of educat i o n .

e arlier

in th is

in the ra d ic a l
the d i r e c t i o n
ventional
there is

study

has been emphasized

11

are a r b i t r a r i l y

i n whi ch t h e a n a l y s i s

approach.

discuss ion of the

t h a t some o f t he p r o p o r t i o n s

analysis

However,

some p r e c e d e n t f o r

used

a s s i g n e d t o show

diffe rs

f rom t he c o n ­

i n t he case o f e d u c a t i o n ,

t he a s s i g n m e n t o f v a r i o u s p r o p o r ­

t i o n s of spending f o r e d u c a t i o n as g e n e r a l
(see C h a p t e r V I ) .

(60

goods b e n e f i t s

The most common p r o p o r t i on of spendi ng

f o r e l e m e n t a r y and s e c o n d a r y educat i on assigned as genera 1
goods b e n e f i t s

is

50 p e r c e n t , al t hough Aaron and McGui re

assume / 0 p e r c e n t .
conclusion

21

I he r a d i c a l

analysis

l e ad s

t h a t more than 50 p e r c e n t o f the b e n e f i t s of

e l e m e n t a r y and secondary ed u c a t i o n a l
capi t a l i s t s .

11

is

spending accrue to

r easonabl e to use 60 p e r c e n t as a com-

promise e s t i m a t e o f t h e s e b e n e f i t s .
21

t o t he

Aar on and M c G u i r e ,

op.

c i t . , p.

916.

146

In t h e case o f spending f o r h i g h e r e d u c a t i o n ,

the

pr opor t i ons used are t he same as those used in the conventional

analysis:

fam ilies

70 per c ent o f the b e n e f i t s

of st ud en ts

accrue to the

and 30 p e r c e n t t o c a p i t a l i s t s .

higher education

is

less d i r e c t l y

more f r eedom f o r

individual

bu t t he needs o f c a p i t a l

r e p r e s s i v e and o f f e r s

c h o i c e s a b o u t p r o g r a ms , e t c . ,

f o r s u i t a b l e p r o d u c t s o f t he

educational

syst em a r e a l s o met by h i g h e r e d u c a t i o n .

im plication

of sequential

requirements
essentially

is

degrees and r i s i n g

t he same f u n c t i o n s

proceeds d i r e c t l y

of B e n e f i t s
of spending f o r educat i on

proposed, w i t h

60 p e r c e n t o f t h e b e n e f i t s

by t he d i s t r i b u t i o n

income and 40 p er cent to the f a m i l i e s

difference

in

Elementary

benef i ts are d i s t r i b u t e d by t he 60 - 40

accruing to c a p i t a l i s t s

accruing

of education.

f r om t h e p r e c e d i n g d i s c u s s i o n .

and s e c o n d a r y s c h o o l

fits

educational

as l o w e r l e v e l s

A11oca t i on of the b e n e f i t s

previously

The

t h a t t h e h i g h e r e d u c a t i o n syst em p e r f o r m s

A llocation

ratio

Public

to f a m il ie s
life tim e

of stu d en ts .

Bene­

o f s tuden ts , a d j u s t e d by t he

incomes o f h i gh s c h o o l

school g r a d u a t e s , a r e a l l o c a t e d
e n r o l l e d c h i I d r e n by f a m i l y
school g r a d u a t i on r a t e s

of c a p i t a l i s t

to the d i s t r i b u t i o n s

i ncome

by income.

Bureau of the Census,

and n o n - h i g h

22

p3

of

d e r i ved from the high
This i s

the same

CPR, P - 2 0 , No. 222, op.

c it.,

p . 5.
23
p. 4.

Bur eau o f t h e Census , CPRs P - 2 0 ,

No. 1 8 5 ,

op. c i t . ,

147
procedure used in the pr evi ous c ha pt e r to a l l o c a t e s p e c i f i c
goods benef i t s .
The b e n e f i t s o f spending f o r h i g h e r e duca t i on are
a l 1oca ted us i ng the 30 - 70 r a t i o proposed above .
benefi ts accr ui ng to capi t a l i sts

(30 p e r c e n t )

The

are d i s t r i ­

buted by the di s t r i b ut i on o f capi t a 1 i s t i ncome, and the
speci f i c goods benef i ts

(70 p e r c e n t )

are di s t r i buted by

the d i s t r i b u t i o n by f a m i l y income of chi 1dren 18-24 year s
old e n r o l l e d a t the undergraduate l e v e l .

24

Total

benef i ts

are reduced by 9 per c ent to account f o r benef i ts which
accrue to o u t - o f - s t a t e

recipients.

A g a i n , t he a 11 o c a t i v e

t e c h n i q u e s f o r speci f i c goods b enef i ts are i den t i ca 1 to
those used in the c o nve nt i ona l

analysis.

Summary
The a n a l y s i s of the benef i ts o f spending f o r p u b l i c
education f o l l ow s

the procedures o u t l i n e d i n Chapter I I I :

Two separat e a n a l y s e s were conducted to gen er at e i n c i d e n c e
est i mat es which di f f e r

onl y as a res u l t of t he di s p a r a t e

nature o f the u nd e r l y i ng assumptions about the r o l e of the
S t a t e i n an advanced c a p i t a l i s t
the c o n v e n t i o n a l

sys tern.

a na 1y s i s , modi f i e d

Chapter VI

c ont ai ns

to r e f 1 e c t b e t t e r the

data on the r e l a t i ve r e t ur n s and access to ed u ca t i on among
d i f f e r e n t income c l a s s e s .
uses a r a d i c a l
on

p.

21 .

analysis

Thi s c h a p t e r ,

on the o t h e r hand,

of the r o l e o f the educat i on sys tern

Bur eau o f t h e C e n s u s , CPR, P - 2 0 , No . 2 3 1 ,

op. c i t . ,

148

i n our s o c i e t y .
points:

The two anal yses d i f f e r on two e s s e n t i a l

speci f y i ng t he b e n e f i t s

r e c i p i e n t s of those b e n e f i t s .
assumes t h a t t h e r e i s

from ed u ca t i o n and t he

The c o n v e nt i on a l

a v a r i e t y of b e n e f i t s

some o f w h i c h a c c r u e t o s t u d e n t s
others which ar e s h a r e d by a l l
radical

analysis

leads

b e n e fit of education

val ues o f t he c a p i t a l i s t

from e d u c a t i on ,

and t h e i r f a m i l i e s *

members of s o c i e t y .

t o t he c o n c l u s i o n

is

analysis

individuals
society.

and
The

t h a t the p r i n c i p a l

inculcated with

the

S i n c e these val ues ar e

d e t e r mi n e d by the capi t a 1 i s t c l a s s *

and t he products o f

e d u c a t i o n a r e w o r k e r s who a r e employed by c a p i t a l i s t s *
follows

t h a t the preponderance o f b e n e f i t s

it

f r om s p e n d i n g

f o r e l e m e n t a r y and secondary educat i on accrues to c a p i t a l i s t s .
Ta b l e 14 shows t he d i s t r i b u t i o n
expenditures
analysis.

for

of benefits

e d u c a t io n which r e s u l t s

f r om

f r om t h e r a d i c a l

S p e c i f i c goods benef i ts a r e a l l oca ted i n the

same way as i n
chap t e r and*
incidence.

t he c o n v e n t i o n a l

analysis

o f t he p r e c e d i n g

t h e r e f o r e , s how the same r e g r e s s i ve p a t t e r n of
Total

benefits*

however ,

include

class

goods

b e n e f i t s wh i ch ar e a 1 1 ocated by the di s t r i b u t i on of
c a p i t a l i s t i ncome.

The p a t t e r n

fits

and h i g h e r e d u c a t i o n ,

f o r both l o c a l

of incidence of t o t a l

becomes p r o gr e s -

s i ve a t the top income b r a c k e t because o f t he l a r g e
o f b e n e f i t s wh i c h a c c r u e t o t h a t b r a c k e t .
of t he r a d i c a l

analysis

bene™

Thus*

amounts

t he r e s u l t s

show t h a t e d u c a t i o n e x p e n d i t u r e s

are

not as g r e a t an e q u a l i z i n g i n f 1 uence on t h e i ncome di s t r i bu­
t i on as t h e y ar e i n
conventional

the c o n v e n t i o n a l

studies.

a n a l y s i s or i n o t h e r

TABLE 14

S p e c i f i c Goods
Be ne f i t s
(Local Educati on)

Under 1

2 62 (27 28)
3 00 ( 7 1 0 )
2 26 e 3 .97)
6 54 ( 8 8 6 )
5 94 ( 6 6 6 )

1- 2

2-3
3-4
4-5
5-6
6-7
7-8
8-9
9-10
10-12

V

7. 30 ( 5
7 83 \t 5
8 51 < 4
8
61 ( 3
8 36 ( 3
11 93 ( 2
13 73 ( 1
10 68 (
2 68 (
99. 99
1

12-15
15-25
Over 25
TOTALS
MONEY
AMOUNTS
( $ 0 0 0 ) 755, 880

35)
29)
35)
58)
16)
06)
68)
74)
25

94)

Tot a l Local
Education B e n e f i t s
1 06 (27 60)
1 38 ( 8 2 0 )
1 34 ( 5 89)

3
3
4
4
4
4
4
7
9
13
35

38
37
14
65
SO
72
82
39
46
89
60

( 11

100

00

(

1 ,889 ,700

(
(
(
(
(
(
(
(
(
(V

44)
9 44)
9 00)
7 85)
6
13)
4 90)
4 56)
3 20)
2 89)
2 41 )
8 28)
4
00

Income
Bracket
($000)

o f Expendi tures f o r

cr>

The D i s t r i b u t i o n

Education - -

Radical

Spec i f i c Goods
Be n e f i t s
( H i g h e r Ed uc a t i on )
1I 07
(/ 3 . 1 2 )
1 22 V .81 )
. 45 )
92 (
2 98 ( 1 . 13)
2 71 (
. 85)
4 88 ( 1 . 19)
. 99 )
5 24 (
. 89)
6 25 (
.81 )
6 99 (
. 72 )
6 78 (
14 79 (
. 72 )
. 58 )
03
17
(
. 45 )
23 29 (
.15
5 84 (
. 54)
99. 99

Anal ysi s

’

Tot a l
Higher Education
Benefits

.

211 ,229

1 2

2
2

4
4
5
5
5
11

13
21
21
100

76 (
95 (
86 (
47 (
39 (
03 (
43 (
07 (
53 (
49 (
66 (
90 (
11 (
35 (
00 (

301 ,756

3 14)
90)
61 )
1 33)
1 07)
1 40)
1 19)
1 03)
92)
83)
81 )
68)
58)
79
78)

TABLE 14 { c o n t ’ d . )

^ Figures in parentheses are percentages of adj ust ed broad income from Table 10
ot her f i g u r e s are percentages of the money amounts shown a t the bottom of the
tab!e.
2
See t e x t f o r e x p l a n a t i o n of the d i s t r i b u t i o n of educat i onal expendi t ur es in
the r a d i c a l a n a l y s i s .
Source:
Same as Tables 12 and 13.

CHAPTER V I I I
THE DISTRIBUTION OF HIGHWAY EXPENDITURES:
CONVENTIONAL ANALYSIS

Expendi tures f o r hi ghways
to $366 . 4 m i l l i o n ,

i

in f i s c a l

or 7 . 7 p e r c e n t o f t o t a l

government s pe nd i n g

1970 amounted

s t a t e and 1 oca 1

(see T a b l e 4 S C h a p t e r I V ) .

The b u l k

of t hese e x p e n d i t u r e s ( 6 5 . 5 p e r c e n t ) were f o r c a p i t a l o u t o
lay pur poses,
but t he benef i ts o f a s s e t - c r e a t i n g ex p e n di t u r e s a r e assumed, i n

this

study,

to accrue in the c u r r e n t

year r a t h e r t han over the 1 i f e o f the a s s e t .

This procedure

i s the same as t h a t used to a 1 1 ocate the b enef i ts o f educa­
t i onal

expendi t u r e s .
The Benefi ts o f Highway Expendi t ur es
The most obvious benef i ts of highway spendi ng are

those which accrue to the users o f the road and s t r e e t
*The t er m "hi ghways" i s d e f i ned, i n t h i s s t u d y , to
i n c l u d e t h e e n t i r e syst em of l o c a l s t r e e t s , county roads,
s t a t e highways and i n t e r s t a t e hi ghways in Mi chi gan.
2

Bureau of the Census, Governmental
1969- 70, op. c i t . , p. 36.

151

Finances in

152
system.

Among these b enef i ts are savings i n

i n v e h i c l e o p e r a t i ng costs and i n

travel

times

reduced acci dent r a t e s .

There are , however, ben ef i ts wh i ch accrue to the owners of
propert y a d j a c e n t to roads and s t r e e t s

and to the general

pub!i c .
The non- user b e n e f i t s

arise

because hi ghways p r o ­

vide access to p r o p e r t y w h i c h might ot he r wi s e have l i m i t e d
val ue and because o f the use of highways by p u b l i c v e h i c 1 e s .
Public use o f the hi ghways by p o l i c e and f i re vehi cl e s , f o r
examples y i e l d s

benefits

to hi ghway n o n - u s e r s s but muni c i -

pa 1 Iv-owned v e h i c l e s were only
t e r e d behi c 1es i n
of t he b e n e f i t s
are i g n o r e d

in

insignif ic a n t

1970.

.2 percent of t o t a l

T h e r e f o r e , the d i s t r i b u t i v e e f f e c t s

wh i ch r e s u l t from use by p u b l i c vehi c 1 es
this

study because of t h e i r r e l a t i v e l y

impact.

A serious
incidence stud ies

s hortcomi ng o f c o n v e n t i o n a l
is

t h a t although

fiscal

t he d i r e c t b e n e f i t s

highway s p e n d i n g have been exami ned e x t e n s i v e l y ,
the s t u d i e s has e x p l i c i t l y
gi ve r i s e

to e x t e r n a l

di seconomi e s .

none of

Among t he n e g a t i v e
n o i s e , and congesti on

i n urban areas and conversi on of o therwi se u s e f u l
l and i n t o

of

r e c o g n i z e d t h a t hi ghways a l s o

b e n e f i t s of hi ghways a r e p o l l u t i o n ,

aesthetic

regis­

concrete.

and

F u r t h e r 8 t h e emphasis on

devel opment and e x p a n s i o n o f hi ghway syst ems has r e s u l t e d
in l im it i n g

the mass t r a n s p o r t a t i o n o p t i ons a v a i 1 abl e to

many p e o p l e , p a r t i c u l a r l y

in

urban a r e a s .

153
In s t a t e - le v e l

st u d i e s 9 highway e x p e n d i t u r e s ar e

somewhat anomalous because they are perhaps t he onl y
e x p e n d i t u r e s which produce s i g n i f i c a n t negati ve, , as wel l
as p o s i t i v e ^

externali ti es.

c os t s and b e n e f i t s
tenuous i n
di t u r e .

is

The assumpti on t h a t the val ue

id en tical

p r o b a b l y becomes more

the case o f hi ghways than f o r any o t he r expen­

The nat ur e o f the p r o b l em of v a l u i n g ben ef i ts

wi 11 become more c l e a r a f t e r a di scussi on o f t he methods
typica lly
benefits

used i n

c onve nt i ona l

st udi es to a 1 1 ocate the

of hi ghway e x p e n d i t u r e s .

Ide ntifyin g

B e n e f i t Re c i p i e n t s

There ar e two m a j o r c l a s s i f i c a t i o n s

of re cip ie n ts

of b e n e f i t s

f rom hi ghway e x p e n d i t u r e s :

non- user s.

Among users t he r e are two ca t e g o r i es of bene­

f i t r e c i pi e n t s :
of

c omme r ci a l

owners o f p r i v a t e

hi ghway user s and

automobiles

vehi cl es such as trucks and buses.

user c a t e g o r y p r i n c i p a l l y

includes

The non­

owners o f p r o p e r t y

which access i s provi ded by roads and s t r e e t s .
locational

and owners

to

The

ad van t ag es o f commercial p r o p e r t y are enhanced

by the i n c r e a s e d access because more people can get to the
pl aces o f bus i ness, t her eby i ncreasi ng s a l e s .

Some non-

user benef i ts al s o accrue to the general p u b l i c through
the use o f hi ghways by p u b l i c

vehicles.

There a r e a number o f methods t h a t have been used
in previ ous f i seal

i n c i d e n c e st u d i e s to a l 1 ocate b e n e f i t s

154
among the vari ous r e c i p i e n t g r oups.

The f i r s t

step

in

the b e n e f i t a l 1 o c a t i on process i s to di vi de b e n e f i ts
between users and non-users of h i g h w a y s .
this

division,

procedures

is

one o f
usually

These f i v e

five

different

us ed.

have been d e v i s e d

purpose o f a l l o c a t i n g

the costs

t he b e n e f i t

of taxation.

yields
wh i c h

cost a llo c a t iv e

3

techniques

principle

In o r d e r to make

for

the

o f h i g h wa y s a c c o r d i n g
Each o f

to

t h e met hods

an a l l o c a t i o n o f costs between u s e r s and non-users
can be used to r a i s e

h i g h w a y funds from each g r o u p

i n p r o p o r t i o n to the assumed b e n e f i t s

r e c e i v e d by each

group.

Of t h e f i ve methods , the earni n gs - cr e d i t a n a l y s i s
has been t h e most w i d e l y us e d, b o t h i n h i g h wa y f i s c a l
4
studies
and i n p r e v i o u s e x p e n d i t u r e s i n c i d e n c e s t u d i e s .
The ea r n i n g s - c r e d i t a n a l y s i s
syst em b e n e f i t s
t he c o s t s

users r a t h e r

of constructing

assumes t h a t

the primary

t h a n proper t y owners .

and m a i n t a i n i n g

s y st em s h o u l d be b o r n e e n t i r e l y

by u s e r s .

user c h a r g e s 3 on a p e r - v e h i c l e- mi 1 e b a s i s ,

road

Thus ,

the pr ima ry

r oad

Total

h i g h wa y

equal

the cost

3

The f i v e p r o c e d u r e s a r e t h e p u b l i c u t i l i t i e s c o n ­
c e p t , t h e p r e d o m i n a n t use a p p r o a c h , t h e s t a n d a r d c o s t
a n a l y s i s , t h e r e l a t i v e use met hod and t h e ea r ni n gs - cr e di t
approach.
See W i l b u r S mi t h and A s s o c i a t e s , M i c h i g a n Hi ghway
F i s c a l A n a l y ses 19 7 0 - 1 990 (New Haven: Wi l b u r Smith and
As s o c i a t e s , ” 197*277 p. 153, f o r e x p l a n a t i o n s o f t h e v a r i o u s
procedures .

4

W i l b u r Smi t h and A s s o c i a t e s , op . c i t . , and Denzel
C l i n e , M i l t o n T a y l o r and Janies Papke, M i c h i g a n Hi ghway
F i s c a l St u d y , 1961 ( E a s t L a n s i n g :
I n s t i t u t e f o r Communi ty
Development , M i c h i g a n S t a t e Uni v e r s i ty , 1 9 6 2 ) .

155
of h i g h wa y s and are a p p l i e d to a l l

road and s t r e e t

Since cos ts per vehi c l e mi l e are hi gher f o r

1 oca 1

syst ems.

streets

than f o r hi ghways, t o t a 1 revenue from user charges w i l l
less than the t o t a 1 cos ts of a l 1 roads and s t r e e t s .

be

The

di f f e r e n c e between highway user charges and t o t a 1 e x p e n d i tures

is

assumed to be the non-user cost responsi b i l l t y .
A n o t h e r analogous c a l c u l a t i o n

i s made f o r

local

s t r e e t s wh i c h are assumed to benef i t p r o p e r t y owners r a t h e r
owners.

t han v e h i c l e

Thus, cos ts o f l o c a l

be the r e s p o n s i b i l i t y
property

o f p r o p e r t y owners through

tax payments,

h i g h wa y s y s t e m.

should
t h ei r

The p r o p e r t y t a x , computed on a

per- m i l e - o f - s t r e e t s - c o n s t r u c t e d b a s i s ,
full

streets

The c o s t s

a p p l i e d to the

is

per m i l e

of

streets

is

l o we r

than t h e costs per m i l e o f cons t r u e t e d hi ghways, and

again

there

is

total

costs

of the s y s t e m .

a deficit

t he cost r e s p o n s i b i l i t y
Th u s ,
sibility

b e t we e n

cost

Each o f

are averaged.

responsibility

user s and n o n - u s e r s .

for

raised

and

assigned as

o f hi ghway u s e r s .
arrive

these,

and n o n - u s e r s , is w e i g h t e d by m i l e s
two e s t i m a t e s

revenue

The di f f e r e n c e i s

the c a l c u l a t i o n s

estimates.

total

at

i.e.,

costs

traveled,

The r e s u l t

the t o t a l

t wo c o s t

is

for

users

and t h e n

a division

h i g h wa y s y s t e m

Si nce benef i ts a r e assumed

c o s t s , a di vi si on of b enef i ts i s

respon­

al so achi e v e d .

the
of

bet ween

to equa 1

156
Eapen and Eapen

5

6

and G i 1l e s p i e

use the ea r ni ngs-

credi t approach, w h i l e Ross uses two a l l o c a t i ve p r o c e d u r e s ,
one o f which does not a 1 1 ocate any b e n e f i ts to non-users
and anot her which assumes an a r b i t r a r y
d i v i s i o n between users and n o n - u s e r s .
arbi t r a r y
Brownlee,

75- 25 percent

7

Si nger is al so

in his method, using a 50- 50 p e r c e n t di vi s i on.
9

Musgrave and D a i c o f f ,
19

Adler,

10

Musgrave, e t a l . ,

19

Reynolds

and Smolensky,

and Conrad

allocate

any p r o p o r t i on to non-use r s .

allocate

any benef i ts o f f e d e r a l

1A

Tucker

O

11

do not

does not

spending f o r

highways to

non- user s, but assigns o n e - t h i rd of s t a t e and 1 oca 1 spendi ng
to owners of r e a l

15

es ta t e .

a l l o c a t e any p r o p o r t i o n

The Tax Foundation

c i t .,

^Gillespie,

pp.

Ross,

op.

op . c i t . ,
c i t .,

^Si nge r , op,
9

Brownlee,

pp.

7 8 - 80 .

14 0- 1 45 .

p . 65.

c i t .,

p.

94.

op . c i t . , pp.

34 - 35 .

^Musgr ave and Daico f f , op. c i t . ,
"11
12

Musgrave, e t a 1. ,

op.

c i t .,
(1),

p.

p.

op.

^Tucker,

op. c i t .,

op . c i t . ,

c it.
pp.

532-533.

Tax F o u n d a t i o n , o p . c i t . ,

p.

1 55 .

34.

c it.

^Conrad,

16

op.

Reynolds and Smolensky,

^Adler,

did not

to n o n - u s e r s .

5
" Eapen and Eapen, op.

7

16

12.

p.

45.

157
The next step in the procedure of a l l o c a t i n g
benefits
classes

is

to

determi ne the b e n e f i c i a r i e s w i t h i n

of u s e r s and n o n - u s e r s .

t h e r e ar e t wo p r i n c i p a l
c a r owner s

the user ca t e g o r y ,

Within

groups o f r e c i p i e n t s :

and owner s o f

commer ci al

the broad

vehicles.

passenger
Agains there

a r e v a r i o u s methods o f a 11 o c a t i ng costs between these two
i7
groups,
b u t the most commonly used i s the i n c r e m e n t a l
c o s t me t h o d .
various

Us i n g t h i s

groups

of

i n h i g h wa y c o s t s
c

of

.

v e m c !es .

vehicles
incurred

are a l l o c a t e d

costs

on t h e b a s i s

of

to

the i ncrements

i n a c c o mmo d a t i n g v a r i o u s

types

IB

The i n c r e m e n t a l
used among f i s c a l

proportions

c o s t met hod has not been w i d e l y*■

although

f r om a s t u d y

uses a 55- 45 r a t i o

to a l l o c a t e

c o mme r c i a l

He d e r i v e s

users.

@
IQ
On l y Eapen and Eapen

incidence studies.

20
and G i l l e s p i e ' 1 use i t ,
five

me t h o d ,

they

derive

their

done i n L o u i s i a n a .
costs
this

alloca-

21
'

b e t wee n p r i v a t e

ratio

Ross
and

from the r e s u l t s

1 ‘7

' Th' cse met hods ar e t h e c o s t f u n c t i o n me t h o d , t h e
v e h i c l e m i l e method, t h e t o n m i l e met hod and t h e i n c r e ­
ment al c o s t method.
See W i l b u r Smi t h and A s s o c i a t e s ,
op . c"I t «, p
168.

* JEapen and Eapen, ojk
■’0
G illespie, o p . c i t .,
21

c i t . , p.
p.

81.

184.

Wi l l i a m D. Ross, F i nanci ng Highway Improvemen ts i n
Loui s i ana (Bator* Rouge:
Loui si ana St a t e Un i ve r s i t y , 1 9 5 5 ) .

158
of t h r ee pr evi ous expendi t u r e i nc i d e n c e s t u d i e s ,
which used s i m i l a r r a t i o s .

each of

22

Si nger a l l ocates a 11 user costs to p r i v a t e passenger
cars,

23

Musgrave, e t a 1 . ,

use a 67 - 33 d i v i s i o n between

individuals

and commerc i a 1 users ,

allocate a ll

h i g h wa y e x p e n d i t u r e s

Tu c k er a l l o c a t e s

50 p e r c e n t

of

24

Reynol ds

to p r i v a t e

all

federal

and Srnol ens ky
o fr
a u t o owners

highway spendi ng

t o users on the basis of a u t o m o b i l e e x p e n d i t u r e s ,

and

t he Tax F o u n d a t i o n a l l o c a t e s

total

50 p e r c e n t by a u t o o p e r a t i n g

expendi t ur es and 50 p e r c e n t by

c u r r e n t consumption e x p e n d i t u r e s .
Benefits
invariably

wh i c h a c c r u e

shifting

transportation

costs

t o c o n s u me r s .

The b e n e f i t s

t he d i s t r i b u t i o n
Private
met hods ,
of o i l

forward

assumption

and t h e s e c o s t s

user b e n e f i t s

25
26

27

Mu s g r a v e ,
R eyno

ids

Tu ck er ,

et a l .
and

op.

9

are

t h a t h i g h wa y s

is

savings
to

Smo 1 e n s k y

c onsumer s by
by i n c o me .

a r e by t h e d i s t r i b u t i ons

ci t . , pp.

cit .,
,

lower

a r e p as s e d a l o n g

auto o p e r a t i n g e x p e n d i t u r e s

op.

The

by v a r i o u s

are a l l o c a t e d

c ' ' Ros s s Okl a h o ma , ojk ci t . , pp.
23
‘ Singery op. c i t . , p . 94.
?&.

users,

consumers .

expenditures

t h e most common o f w h i c h

and gas e x p e n d i t u r e s ,

users

to

are a l l o c a t e d

o f consumpt i on

to

27

to commer ci al

assumed t o be s h i f t e d

for t h i s

rationale

h i g h wa y c o s t s

( 1)

68-69.

p.

34,

, og_.

532-533.

Tax F o u n d a t i o n , o p . c i t , ,

p.

12,

ci t . ,

p.

43,

and

159
aut o o wn e r s h i p .

The d i s t r i b u t i o n

o f auto o p e r a t i ng

expendi tures seems to be the most p r e f e r a b l e o f the t h r e e
alternatives

because these expendi t u r es are more i n c l u s i v e

of the costs of v e h i c l e use than o n l y o i l

and gas e x p e n d i ­

tures . a l t h o u g h both of these a l t e r n a t i v e s

w ill

t end to

have a p r o g r e s s i v e bias t o t h e e x t e n t t h a t hi gher c o s t s per
mi l e are a s s o c i a t e d w i t h

larger,

more expens i ve,

cars.

Auto ownership seems to be the 1 e a s t p r e f e r a b l e of the
t h r e e because o wn e r s h i p

does n o t n e c e s s a r i l y

r e f l e c t use,

and benef i t s woul d t end

t o be b i a s e d t o wa r d p r o g r e s s i v i t y

because o f t he p o s i t i v e

correlation

bet ween m u l t i p l e

owner­

shi p and i ncome.
Among t he s t u d i e s whi c h a l l o c a t e b e n e f i t s
us e r s , o n l y Stoss has made an a l l o c a t i o n
bot h c o mme r c i a l
property

tial

non-users,

ar e s h i f t e d

non- us er s

receive be nefits

ways

29

commer ci al

on t h e b a s i s o f t he d i s t r i ­
on homes .

ps

issue of o u t - o f - s t a t e s h i f t i n g o f b e n e f i t s

the p r o b l e m) -

of t o t a l

bet ween commer ci al

f o r w a r d t o c ons umer s , w h i l e r e s i d e n ­

arose i n t h r e e o f t he f o u r s t a t e - l e v e l
addr ess

to

He uses r e a l

and assumes a l l

b u t i o 'o by i ncome o f e x p e n d i t u r e s
Tht

of benefits

beneficiaries.

assessment s t o d i v i d e b e n e f i t s

and r e s i d e n t i a l
benefits

and p r i v a t e

t o rion­

user b e n e f i t s

studies

(Ross d i d n o t

Eapen and Eapen a l l o c a t e d
to o u t-o f-s ta te

10 p e r c e n t

user s of t he h i g h -

and Brown 1ee assigned 8 pe r c e n t of passenger car
28
29

Ross, Oklahorna , o p . c i t . ,
Eapen and Eapen, op.

c i t .,

p.
p.

71.
82.

160

user b e n e f i t s

to o u t - o f - s t a t e d r i v e r s .

Dai c o f f shi f ted b e n e f i t s

30

Musgrave and

to o u t - o f - s t a t e

only the business share o f benef i t s .

res i den ts from

31

The as s u mp t i o n about the business share o f benef i ts
I s t h a t they a re t r e a ted as a n e g a t i v e sal es t a x , so Mus­
gr ave and Da i c o f f a l 1ocated 54 . 9 4 p e r c e n t o f the b u s i n e s s
shar e o f hi ghway benef i ts to o u t - o f - s ta te cons umers.
proportion

Thi s

( 5 4 . 9 4 p e r c e n t ) was the p r o p o r t i o n o f t o t a l

sal es of Mi chigan f i r m s whi ch were made o u t s i d e o f
O'"4
M1 chi gan
It
that

the

s h o u l d be a p p a r e n t

conventional

tion attempt

procedures

to a c c o u n t s

at

e x t e r n a l i t i e s whi ch a r i s e
t enance o f
However .

t he

the

Mohr l ag acknowl edges

33

positive

These met hods do n o t »
issue

of

the assumpt i on

o f hi ghway d e v e l o p me n t .

of

In a

33

“ Herbert

t he e x i s t e n c e o f bot h p o s i t i v e and
c 1 1 . , p . 35.

31
J ' Musgr ave and Dai c o f f ,
p.

for

o f ur ban hi ghway s p e n d i n g ,

30
" B r o wn 1 e e , op.

32i b l d . ,

part,

alloca­

and benefi t s , nor do they r e c o g n i z e

the n e g a t i v e e x t e r n a l i t i e s
cos t - o e n e f 1 1 a n a l y s i s

in

h i g h wa y b e n e f i t

from the c o n s t r u c t i o n and m a i n ­

recurring

of c o s t s

of

least

h i g h wa y s y s t e m .

address

the i d e n t i t y

f r o m t he p r e c e d i ng di scussi on

op.,

c i t .,

p.

182.

182.

H e r b e r t Mohri ng, " Ur ban Hi ghway I n v e s t m e n t s , " i n
Meas u r i ng Benef i t s o f Gover nment I n v e s t m e n t s , e d . by Robert
Do r f ma n " ( Wa s h i n g t o n , D. C. :
The B r o o k i n g s I n s t i t u t i o n ,
1965),

pp.

231-291.

161
negat i ve e x t e r n a l i t i e s

but admits t h a t data to val ue the

e x t e r n a l i t i e s are l a c k i n g . ^
In order to assume the i dent i ty of t he costs and
di r e c t benef i ts of hi ghway

expendi t u r e s , i t

i s al so neces­

sary to assume t h a t pos i t i ve and n e g a t i v e e x t e r n a l i t i e s
ar e not only equal
tributional

but al so t h a t they have i d e n t i c a l

impact s.

because w i t h o u t

it

The second condi t i on i s

the co n v e n t i o n a l

dis­

necessary

a l 1 o c a t i v e procedures

woul d be e r r o n e o u s .
I n keepi ng w i t h

conventional

dat a do n o t e x i s t t o v a l u e
assumes t h a t b e n e f i t s
facilities.

It

is

externalities,

equal

i mpor tant to r ecognize,

s t a t e d when equat ed t o c o s t s .
the v a l u e o f e x t e r n a l i t i e s
because t he c o n c e n t r a t i o n
p o l l u t i o n and c o n g e s t i o n
urban

per sons w i t h

is

benefits

likely

hi ghway

however , t h a t
are pr o ba bl y o v e r ­

The d i s t r i b u t i o n a l

i mpact of

t o be r e g r e s s i v e

of negative e x t e r n a l i t i e s
is p r in c ip a lly

of

ar eas where t h e r e a r e l a r g e c o n c e n t r a t i o n s

of

l ow i ncome.

The A l l o c a t i o n

of Benefits

t hes e c a v e a t s i n mi n d,

in

in

such as

the c en t er s

relatively

With

t h i s study also

the c os t o f p r o v i d i n g

i n t he case o f hi ghway s p e n d i n g ,

largo

p r a c t i c e , and because

this

St udy

t h i s s e c t i o n t ak e s

up

the d e t a i l e d d i s c u s s i o n of t he a l l o c a t i v e methods used i n
34Ib

± d . > P.

231.

162
t hi s study.

For the most p a r t ,

these methods a r e s i m i l a r

to those used by Eapen and Eapen

35

and Ross.

36

The a l l o c a t i v e procedures used i n t h i s

study have

one s i g n i f i c a n t advantage over those used i n pr e v i ous
studies because o f the a v a i 1 a b i 1 i ty of two r e c e n t st udi es
of the Michigan hi ghway f i s c a l
of o t h e r e x p e n d i t u r e

37

structure.

i n c i d e n c e s t u d i e s whi c h used s i m i l a r

methods

(Gillespie,

results

o f a hi ghway s t u d y done i n L o u i s i a n a

Eapen and Eapen, and Ross) used the

to g e n e r a t e t h e i r a l l o c a t i v e
The f i r s t
i n 1962.

The a u t h o r s

(see n o t e 2 1 )

proportions.

study a v a i l a b l e

f o r Mi chigan was co mp l e t e d

This s t u d y made hi ghway cost p r o j e c t i o n s

p e r i o d I 960 t o 1980 and s e l e c t e d

the y ear

for

1970 f o r a n a l y s i s .

Usi ng t he earni n gs - cr e di t method of cost a l l o c a t i o n ,
Cl i ne,,

et aI .,

the

s t u d y a s s i g n e d 64 per c ent of t he c o s t s

hi ghways t o user s and 36 p e r c e n t t o hi ghway n o n - u s e r s .
A more r e c e n t a n a l y s i s

basis,

of
38

o f hi ghway c o s t s was c o mp l e t e d i n

1972 and p r o j e c t e d c o s t s
cost s f o r

the

o v e r t he p e r i o d

1970 t o

1990.

t he 2 0 - y e a r p e r i o d wer e aver aged on an annual

and t he e a r n i n g s - c r e d i t method o f cost a l l o c a t i o n
35
36

Eapen and Eapen,

op.

Ross, Ok 1ahoma , op.

^See

c lt.
ci t .

note 4.

90

Cline,

et a1. ,

op.

c i t . , p.

147.

The

163
assigned 62 p e r c e n t as the user share o f costs and 38 p e r cent as the non-user s h a r e .
The C l i n e , e t al . ,

39
study di d not use the i nc r e me nt a l

cost method to assi gn cost shares among v e h i c l e c a t e g o r i e s .
A less s o p h i s t i cated method was used whi c h y i e l d e d the
following

cos t a l l o c a t i o n s :

medi um-si ze t r u c k s 40
5 percent.

10

passenger c a r s , 85 p e r c e n t ;

percent;

and l a r g e t r ucks and buses,

The 1 972 hi ghway s tudy used the i ncremental
method wh i c h y i e l d e d co st a l l o c a t i o n s
passenger c a r s ,
and p i c k u p

p e r c e n t to b u s e s » 6 . 9 p e r c e n t to panel
A1
and 2 1 . 5 p e r c e n t t o t r u c k s .
Si n c e t h e

two hi ghway f i s c a l

studies

arrive

a t such s i m i l a r r e s u l t s

usi ng t he e a r n i n g s - c r e d i t a n a l y s e s ,

division

bet ween t h e i r

bet ween

i ncrement al

cost

of 70, 4 p e r c e n t t o

1.2

trucks

difference

cos t

results

this

t o a compr omi se a p p r o a c h .

The

howev er ,
For t h i s

t he 15/ 2 Mi c h i g a n hi ghway f i s c a l

t he

and uses a 63 - 37 p e r c e n t

user s and n o n - u s e r s .
analyses,

study s p l it s

do
reason,

n o n - c o mp a r a b l e
n o t l e n d t he ms el v e s
the r e s u l t s

of

s t u d y ar e used i n t h i s

study.
In addition
ger c a r s ,

to the 7 0 . 4 p er c ent a l l o c a t e d to passen­

3 . 4 p e r c e n t o f the 6 . 9 p er c ent assi gned to panel

and pickup trucks i s a l s o assi gned to the p r i vate
39

Wilbur

40Clines

41

Smi t h and A s s o c i a t e s ,
e t a 1. ,

op,

c i t .,

op.

c i t . , p.

165,

pp. 1 9 9 - 2 0 0 , 21 1.

W i l b u r Smi t h and As s oc i a t e s , op.

c i t . , p.

184.

164
u s e r cat egory to account a p p r o x i ma t el y f o r

the p r o p o r t i o n

of these v e h i c l e s which a r e p r i v a t e l y owned.
p e r c e n t of u s e r b e n e f i t s

accrue

p e r c e n t accr ue t o commer ci al
distributed

among p r i v a t e

i ncome o f e x p e n d i t u r e s
The b e n e f i t s

t o commer ci al

the c o n v e n t i o n a l

using

ar e s h i f t e d

f o r wa r d . .

users

shifting

is

are

use n a t i o n a l l y .

automobile

are a l l o c a t e d
assumption

The d i s t r i b u t i o n

to Michigan r e s i d e n t s
income'

The s e b e n e f i t s

by t h e di s t r i b u t i on by

users

for

u s e r s , and 26 . 2

to p r i v a t e

users.

Thus , 7 3 . 8

of

by c o n s u m p t i o n

to

consumer s

all

that

42

benefits

these b e n e f i t s

expendi t ures by

class

An a p p r o x i m a t i o n

of

the p r o p o r t i o n

of

highway use

a 11o c a b 1e t o o u t - o f - s t a t e

can be made from a 1964

study

At

or

tourists

drivers
4 /!
in Michigan.

resident

tour i sts

drove over 9 b i l l i o n

miles

driven

ir< 13 70 wer e o v e r

that

time

mi l e s . ,

50 fai l 11 on., '

{1 964}
while

non­

total

Mor e r e c e n t

dat a

for n o n - r e s i d e n t

driving

i s unava i 1 ab 1 e s so t h e assump­

tion

in

that

percent of p r i v a t e

this

car b e v v i e s
Is onl y

study

is

to o u t - o f - s t a t e

accrue

approximate,
'~t f Hus g To. v e .
4s

"Roberts,

44

20

b u t assumes
et

cd«

a. 1 , . p.

drivers.

that

passenger

This

non-resident

e s t i ma t e
driving

10.

cit,

M i c h i g a n D e p a r t m e n t o f S t a t e Highways, T o u r i s t
T r a v e l i n M i c h i g a n , 1964 ( L a n s i n g :
M i c h i g a n Department o f
S t a t e H1g h w a y s , 1 9 6 4 ] .
4c
“ i b i d . , pp.. 1 4 - 1 4 0 ; M i c h i g a n Department o f S t a t e
Hi ghways , T w e n t i e t h Ann u al P r o q r ess Repo r t ( L a n s i n g :
Mi chi
gan D e p a r t m e n t o f S t a t e Hi ghways. , 197 2 ) 3 p. 4.

165
increased over the si x - y e a r p e r i o d to 1 0 b i 1 1 ion
mi l e s .
In the case o f commercial b e n e f i t s *

Roberts has

est i mated t h a t 5 1 . 7 p e r c e n t of the t o t a 1 sa l es o f Mi chigan
f i rms a re made to Mi chigan r e s i d e n t s and 4 8 . 3 p e r c e n t to
o u t - o f - s t a t e customers.

46

The benef i ts of hi ghways whi c h

accrue to commercia 1 users and non-users ar e reduced by
48. 3 per cent to r e f l e c t

the o u t - o f - s t a t e s h i f t i n g o f

benef 1 t s .
No n - u s e r benef i ts ar e d i v i d e d between p r i v a t e and
commer ci al

owners o f rea 1 p r o p e r t y accor di ng to the d i v i 47
si on of ownershi p i n the s t a t e between the two g r o up s .

P r i v a t e n o n - u s e r b enef i ts are a l l o c a t e d by t h e d i s t r i b u t i o n
of p r o p e r t y 1 ncome, imputed
o wn e r s h i p )

r e n t , (as a proxy f o r p r o p e r t y
4R
by i ncome c l a s s .
Commerci al non-user b e n e f i ts

are again assumed s hi f t e d f o r w a r d to consumers and a l l o ­
cat ed by t he d i s t r i b u t i o n

of c o n s u mp t i o n e x p e n d i t u r e by

income.
These a l l o c a t i o n

procedures can be summarized as

f o 11 ows :
4 6 r.R ot b e r t s , o p . c i z .
47
Michigan De p a r t me n t o f Commerce» Economic P r o f i l e
Sheet No. 9 . 1, Taxes ( L a n s i n g :
Mi chigan Department o f
Commerce, 197T] ^
^ S e e T a b l e 3,

Ch ap t e r I V .

166
User s:

Distributed by:

63 p e r c e n t of t o t a l

benefits

P r i v a t e users 37 . 2 pe r c e n t
[ ( 63 X. 7 3 8 ) X. 8 2 ]

Automotive e x p e n di t ur e s

Commercia1 users 8 .5 p er c ent
[ ( 6 3 X . 2 6 2 ) X . 51 7 ]

Consumption ex p e n di t ur e s

Non- user s:
37 p e r c e n t o f t o t a l

benef i ts

P r i v a t e 2 2 , 9 p er c ent
[ (3 7 X, 6 2 ) ]

Pr o p e r t y Income (imputed
rent)

Commercial 7 , 3 percent
[ ( 37X. 3 8 ) X . 51 7 ]

Consumption e x p en di t ur es

Total

75 . 9 per cent

Michigan r e s i d e n t benefi ts

CHAPTER I X
HIGHWAY EXPENDITURES:

The r a d i c a l

A RADICAL ANALYSIS

a n a l y s i s uses a d i f f e r e n t model o f the

s o c i a l , economic, and p o l i t i c a l

system i n the U.S.

and

Michigan to anal yze the i n c i d e n c e o f p u b l i c s e c t o r e x p e n d i ­
tures.

This model at t empt s to make the c l a s s s t r u c t u r e of

our capi t a 1 i st system endogenous, and by doing so the
model makes pos si bl e a d i f f e r e n t i n t e r p r e t a t i o n

of the

spendi ng p a t t e r n s o f the p u b l i c s e c t o r .
In t h e case of h i g h w a y s , the r a d i c a l
b e t t e r equipped than t he convent i onal model
e x t e r n a l i t i e s whi ch r e s u l t

model

is

no

to v a l u e the

from hi ghways , but i t s

assump­

t i o n of c l a s s domi n at i on o f the socioeconomic system y i e l d s
an i n t e r p r e t a t i on o f the reasons f o r e x t e r n a l i t i e s which
is usually

lacking

i n c onvent i onal

studies.

c l a s s d o m i n a t i o n a s s u mp t i o n i n t he r a d i c a l
different,
benefits

and per haps more a c c u r a t e ,

and b e n e f i c i a r i e s
The r a d i c a l

i d e n t i ty of b e n e f i t s

F u r t h e r * the
analysis yields

descriptions

of the

of s p e n d i n g f o r h i g h wa y s .

analysis retains

the a s s u mp t i o n o f t he

and c o s t s and the user/non-* user

di chotomy of benef i t r e c i p i e n t s .

167

B u t , i n addi t i on to the

168

user / non- user d i s t i n c t i o n ,

the r a d i c a l

analysis

another group of b e n e f i t s and b e n e f i c i a r i e s .

i d e n t i f i es

These b e n e f i t s

have p r e v i o u s l y been c a 1 1 ed cl ass goods b e n e f i t s
t hey accrue to a p a r t i c u l a r cl a s s o f p eo pl e,
These benef i ts a r i s e ,

i n the r a d i cal

the nature o f the cl ass s t r u c t u r e
economic system.
domi nant cl ass .

Capitalists

because

the capi t a l i sts .

analysis,

because o f

in a c a p i t a l i s t s o c i o ­

ar e assumed to be the

Thus, w h i l e user and non-user b enef i ts

ar e a l l o c a t e d i n the same way as i n t h e c o n v e n t i o n a 1
analysis,

t h e amount of t h e s e be n e f i ts i s

reduced by the

amount of cl ass benef i ts which accrue to capi t a l i s t s .
The Nature o f B e n e f i t s from
Hi ghway Spending
The b e n e f i t s
between user,

non-user and cl a s s goods b enef i ts .

non-user b e n e f i t s
conventional

of highway s p e n d i n g can be d i v i d e d

are qua 1 i t a t i v e l y s i m i l a r

analysis:

User and

to those i n the

reduced t r a v e l , o p e r a t i ng and

a c c i d e n t c o s t s and access

to property,

respectively.

To a c c o u n t f o r o t h e r s i g n i f i c a n t b e n e f i t s whi c h
accr ue as c l a s s goods,
p a r t o f t he b e n e f i t s
results

t he r a d i c a l

a n a l y s i s assumes t h a t

f r om t h e p u b l i c p r o v i s i o n o f hi ghways

f r om t h e d o m i n a t i o n o f t h e p o l i t i c a l

economi c sys tem by capi t a 1i s t i nt eres t s .
c l a s s goods b e n e f i t s
to owners of

capi t a l

and s o c i o ­

The c a t e g o r y of

should count the b e n e f i t s

wh i c h a c c r u e

i n the aut omobi 1 e i ndus t r y and a u t o -

or h i g h w a y - r e l a t e d i n d u s t r i e s which i n c l u d e ,

among o t h e r s ,

169
the p et r ol eum,

rubber, s t e e l , glass, concrete, asphalt,

a u t o - r e l a t e d s e r v i c e and r e c r e a t i on and t r a n s p o r t a t i o n
i ndus t r i e s .

In a d d i t i o n ,

the aut omobi 1 e and the

system ha ve been i mp o r t a n t f a c t o r s

hi ghway

in the s p a t i a l

d ev el op-

ment of urban and suburban a r e a s , and highways are an
i mpor t ant means by which some peopl e can escape the con­
gestion,

p o l l u t i o n and noi se in c i t i e s

and l i v e

in the

suburbs .
The development of highways has been both a means
f or and a r e s u l t of the exodus from c i t i e s
and commercia 1 a c t i v i t i e s ,
mi d d l e - c l a s s p er s o ns.

of i ndustri a 1

and l a r g e numbers o f upper- and

Thus, highway development and expan­

sion of the system have b ee n , in O' Connor's words, s upported
by ".

.

. many o t he r se ct or s o f monopoly capi t a 1 [ i n a d d i -

t i on to the aut omobi l e 1 obby] and the genera 1 p u b l i c . "
The concept o f s o c i a l l y

necessary costs can be used

to descri be the types of b e n e f i t s
and t h e i r a l l o c a t i o n .
among r a d i c a l s

from h i ghway spendi ng

There would be widespread agreement

t h a t the highway systern in the U.S. and

Michigan is over - devel oped r e l a t i v e
transportation.

to o t h e r means of

There would al s o be agreement wi t h the

posi t i on t h a t the exi s t i ng hi ghway system would be necessary
even under a more r a t i o n a l
at l e a s t in the s h o r t t e r m .
^ O' Co nn or ,

sys tern of s o c i a l

priorities,

As Andre Gorz has w r i t t e n :

o p . c i t . , p . 106.

170

And f i n a l l y the p r i v a t e automobi 1e becomes a s o c i a l
n e c e s s i t y : urban space i s organi zed in terms o f
p r i vat e t r a n s p o r t a t i o n ; p u b l i c t r a n s p o r t a t i on lags
f a r t h e r and f a r t h e r behind the spread of the
suburbs and the i n c r e a s i n g d i s t a n c e requi red to
t r a v e l to work; . . . The possession of an a u t o ­
mobi 1 e becomes a basi c necessi t y because the u n i ­
verse i s or gani zed in terms of p r i v a t e t r a n s p o r t a ­
t i o n . . . [ M ] o t o r i zed escape [f rom unbearabl e
ci t i e s ] w i l l c o n t i nue to be an i m p o r t a n t - - a l t h o u g h
d ecreasi n g - - e l e me n t in the r e p r o d u c t i on of l a b o r
power, even when p r i o r i t y has r e t u r n e d to ci t y
p l a n n i n g , to c o l l e c t i v e s e r v i c e s , and to p u b l i c
t r a n s p o r t a t i on.2
The pr esent s t u d y accepts t h e p r e mi s e t h a t t h e
aut omobi l e i s
of hi ghways

a social

necess i t y and tha t the p r es ent system

i s a 1 so s o c i a l l y

i n d e f i n i t e p e r i o d o f t i me.

However, expansion o f the h i g h ­

way syst em under a s o c i a l i s t
become u n i m p o r t a n t r e l a t i v e

neces sa r y , a t 1 eas t f o r some

socioeconomic systern would
to emphasis on e x p an di ng p u b l i c

t r a n s p o r t a t i o n opt i ons and encouraging w o r k - 1 i vi ng a r r a n g e ­
ments which woul d reduce a 11 types o f t r a n s i t .
o n l y t h a t p r o p o r t i o n o f hi ghway expendi t ures
other

t han c o n s t r u c t i o n

is

Therefore,

f o r purposes

considered s o c ia lly

necessary

costs ,
The p r i n c i p a l
be t h a t

shortcomi ng o f t h i s approach could

t he c o n s t r u c t i o n

ments t o t he e x i s t i n g

category of costs

includes

improve­

sys tern o f h i g h wa y s , as we 11 as con-

s t r u c t i on o f new h i g h wa y s .

However ,

it

Is

likely

t h a t much

of the improvement of hi ghways comes a t the expense of
d e v e l o p i n g o t h e r means o f t r a n s i t and i s

a r e s u l t o f the

hi s t o r i c a 1 l y one - si ded appr o ac h to t r a n s i t
2

Quoted i n

Gor don, o p . c i t . ,

i n Mi ch i g an .

p . 413.

11

171
is al so reasonabl e to assume t h a t judgments about the
adequacy of e x i s t i n g roads are i n 1 arge p a r t based on
criteria

which exclude c o n s i d e r a t i o n of a l t e r n a t i v e

of t r a n s p o r t a t i on or reduced t r a v e l
improvements as w e l l

altogether.

forms

Therefore,

as new c o n s t r u c t i o n are assumed to be

s o c i a l l y unnecessary.
In the 1ong run * t h e e x i s t i n g
become a l e s s

hi ghway system would

i mpor t ant f e a t u r e of the t r a n s p o r t a t i o n

system, so some p a r t of mai nt en an c e costs c o u l d al so be
c o n s i d e r e d s o c i a l l y unnecessary.

This s t u d y , however, deals

only wi t h one year and takes a s h o r t - r u n v i e w o f e x p e n d i ­
ture anal ysi s.

T h e r e f o r e , s i n c e ma i n t e n a n c e c o s t s

could

be di scont i nued a t any t i me, depending on the need f o r
vari ous part s o f the hi ghway system,
si dered s o c i a l l y necessary i n t h i s
I d e n t i f y i ng Benef i t

these costs are con­

study.

Reelp i ents

Wi t hi n t he category of s o c i a l l y
benefi t rec i pi ents can be i d e n t i f i e d
of hi ghway s.

necessary c o s t s ,

as users and non-users

The procedure used to make t h i s

i s the same as t h a t used i n the convent i onal
the previ ous c h a p t e r .

distinction
ana 1 ys i s i n

Thus, the same p r o p o r t i ons a re used

to a l 1 ocate s o c i a l l y necessary costs between users and
non-users as were used to a l l o c a t e
hi ghway expendi t ures
the d i s t r i b u t i o n a l

the f u 11 amount of

i n the convent i onal

analysis.

s e r i e s used to a l l o c a t e

benefits

Further,
among

172
income cl asses

in the c o n v e n t i o n a 1 a n a l y s i s ar e a l s o used

in t he r a d i c a l

analysis.

The amount o f cl ass goods benef i ts o f highway expenditures

( the excess of a c t u a l

costs) i s

over s o c i a l l y necessary

determi ned by assuming t h a t c o n s t r u c t i o n costs

were not s o c i a l l y n e c e s s a r y .

Spending f o r a l l

o t h e r aspects

of hi ghway programs i s assumed to be s o c i a l l y n e c e s s a r y .
To compute the p r o p o r t i o n s r e p r e s e n t e d by each o f
these c a t e g o r i e s , f e d e r a l
be devot ed e n t i r e l y

a i d f o r hi ghways was assumed to

to c o n s t r u c t i o n .

The c a l e n d a r 1969

budgets of the county road commi s si ons and c i t i e s
villages,

as w e l l

as the f i s e a l

and

1971 b u d g e t o f the S t a t e

T r u n k l i n e Fund., were used t o d e t e r m i n e t h e amount s devoted
to cons t r u e t i o n and o t he r expendi t ur e s .

3

A p p r o x i m a t e l y 47 p e r c e n t of t o t a l
hi ghways a t a l l

three levels

construction expenditures.

ex p e n di t ur e s f o r

o f gover nment was d e v ot e d to
F e d e r a l l y s ha r ed hi ghway

revenues have been s u b t r a c t e d from both t o t a l

spendi ng

and c o n s t r u c t i o n s p e n d i n g .
The c l a s s

goods b enef i ts of highway expendi t ures

(47 p er c ent of t o t a l
to c a p i t a l i s t s .

spending f o r

This procedure i s

h i g h wa y s )

ar e a l l o c a t e d

p r e f e r a b l e to using the

money f l o w concept of b e n e f i t a l l o c a t i o n , because the money
flow approach wo ul d a 1 1 ocate the benef i ts o f s o c i a l l y
3
Annual

M i c h i g a n Department of S t a t e Highways, T w e n t i et h
Progress R e p o r t , op. c i t . , pp. 72, 93, l l TT
’

173
unnecessary expendi t ures p r i n c i p a l l y

to the road c o n s t r u c ­

t i o n i ndus t r y as the di r e c t r e c i pi ents o f money payments
f o r hi ghway c o n s t r u c t i on.
The money f l o w concept i s
because i t

r e j e c t e d in t h i s study

i gnores o t h e r i mp o r t a n t b e n e f i c i a r i e s

o f spend­

i ng f o r hi ghways , such as the h i g h w a y - r e l a t e d i n d u s t r i es
l i s t e d above.
t he

Using t h e money f l o w c o n c e p t a l s o i g n o r e s

c o mp o s i t i o n o f

t h e d o mi n a n t c l a s s

and woul d i m p l y p a r t i a l

rejection

a t the s t a t e

level8

o f t h e a s s u mp t i o n of

class domi nat i on, ,
The c o m p o s i t i o n o f t h e dominant cl ass i n Michigan
i ncl udes persons who r e c e i v e money payments f o r highway
c o n s t r u e t i on , b u t

it

a n cillary benefits

al so i ncludes the r e c i pi ents of

o f t h e p u b l i c p r o v i s i o n o f hi g h wa y s .

M i c h i g a n ' s m a n u f a c t u r i n g s e c t o r i s h e a v i l y domi nat ed by
t he mot or v e h i c l e

i n d u s t r y and i n d u s t r i e s

a u t o m o b i l e m a n u f a c t u r e or c o n s t r u c t i o n
exampl e o f
facturing

related

to e i th e r

o f h i gh wa y s .

the i mpor t ance o f t hese i n t e r e s t s

An

i n t h e manu­

s e c t o r s i g n o r i n g the i mportance of highways f o r

t he gover nment and s e r v i c e s e c t o r s ,
percent o f t o t a l

is

that

in

19 69, 51

v a l u e added by m a n u f a c t u r i n g i n Mi c h i g a n

occurred i n a u t o m o b i l e -

or hi ghway- r el a ted i n d u s t r i e s ,

and

42 p er c ent o f manuf act ur i ng employment was a l s o centered
in t hese i n d u s t r i e s .
^Mi chigan S t a t i s t i c a l A b s t r a c t , 1972 ( East L a n s i ng :
Di vi si on o f Resear ch, Graduate School of Busi ness, Michigan
S t a t e U n i v e r s i t y , 1 9 7 2 ) , pp. 2 7 5- 2 80 .

174
The i mportance o f the automobi 1e and r e l a t e d i ndust r i e s , and consequentl y hi ghways, in the Michigan economy
means t h a t the owners o f c a p i t a l

i n these i n d u s t r i e s ar e

al so i mp o r t a n t members o f the c a p i t a l i s t cl ass i n Mi chi gan.
0 1Connor argues t h a t

l a r g e segments o f monopoly capi t a l

have r e c e n t l y begun to advocate mass t r a n s i t programs i n
opposition

t o t he i n t e r e s t s

apparent s p l i t

o f the aut omo bi l e l o b b y . '

Thi s

i n the i n t e r e s t s of the monopoly capi t a 1 i s t

s e c t o r m i g h t ar gue f o r a d i f f e r e n t t e c h n i q u e t o a l l o c a t e
t he c l a s s
But i t

goods benefi ts o f hi ghway spendi ng i n t h i s s t u d y .

i s al so i mp o r t a n t to r e c o g n i z e t h a t st u d i e s of the

recently

d e v el op ed mass t r a n s i t

and Washi ngt on, ,

B.C.,

pr ogr ams i n San F r a n c i s c o

have f ound t h a t t he b e n e f i c i a r i e s

of

these programs are al so members of t he monopoly capi t a l i s t
class

i n t he two c e n t r a l

these c i t i e s .
hi ghways*

6

Furthers

including

cities

and t he subur ban ar eas of

some o f the i ndus t r i es which s upport

t h e a u t o m o b i l e i n d u s t r y * woul d a l s o

benefi t f r om mass t r a n s i t programs * f o r example*
struction

and s t e e l

Thus*

the c o n ­

industries.

t h e p r e s e n t syst em o f hi ghways and two r e c e n t l y

devel oped mass t r a n s i t

syst ems ar e desi gned p r i n c i p a l l y

benefi t the c a p i t a l i s t

class.

5
£

0 1 Connor , op. c i t . * p.

Danny Beagl e*
Transi t : The Case of
"Met r o: Rapid T r a n s i t
Gordon, op. c i t . , pp.

Ultimately*

to

the domi nance

107.

Al Haber and David Wellman* "Rapid
BART/' and W i l l a r d M. Bri t t a i n ,
f o r Suburban Washington," in
4 3 7 - 4 3 9 , and 4 3 9 - 4 4 3 , r e s p e c t i v e l y .

175
over the p o l i t i c a l
will

sys tem e x e r c i sed by capi t a l i s t i n t e r e s t s

p r e c 1 ude the development o f programs which do not

serve ei t h e r the accumul ati on or l e g i t i m i z a t i o n purposes
of the domi nant cl ass .

The con t i n ue d ,

though decreasi ng ,

emphasis on highway development ( c o n s t r u c t i o n )

i s a r e f 1 ec-

t i o n o f the domi nant i nt er es ts of capi t a l i s t s .
Summary
The r a di cal a n a l y s i s of the i nci dence o f hi ghway
spendi ng i ncludes t h r e e c a t e g o r i es o f b enef i c i a r i e s :

users,

n on - us e r s , and capi t a l i sts who r ecei ve cl ass goods benef i t s .
The a 11 oca t i on of b e n e f i ts to p r i va te passenger car users
of highways is probabl y over est i mat ed i n c o n v e n t i on a 1
st udi es because o f the l ac k of t r a n s p o r t a t i on opt i ons open
to these users .

E s s e n t i a l l y t h i s means t h a t the coerci ve

element o f l i m i t e d o p t i ons should reduce the benef i ts
allocated

to p r i va te u s e r s .

The radi cal

in p a r t f o r t h i s bias by l i m i t i n g
combined to
spendi ng.

analys i s accounts

user and non-user benef i ts

p e r c e n t o f the t o t a l

ben ef i ts of highway

The rema i ni ng 47 per cent of b e n e f i t s a r i s e s from

c o n s t r u c t i o n costs and i s cons i dered cl ass b e n e f i ts which
accrue to capi t a l i s t s .

The a l 1o c a t i ve procedures used in

the r a d i c a 1 a n a l y s i s ar e s i m i 1 ar to those used i n the con­
venti ona 1 a n a l y s i s of the precedi ng c ha pt e r and can be
summarized as f o l 1 ows:

176
Users

D i s t r i b u t e d by:

33. 4 p e r c e n t of t o t a l
( 53 X. 63 )

b e n e f i ts

Net p r i v a t e 1 9 . 7 p er c ent
[ ( 3 3 . 4X. 7 3 8 ) X . 8 ]

Automoti ve e x p e n d i t u r e

Net commer ci al 4 . 5 pe r c e n t
[ ( 3 3 . 4X. 2 6 2 ) X.517]

Consumption expendi t u r e

Net user b e n e f i t s

24 . 2 per c ent

Non-users:
19.6 per cent of t o t a l
(5 3 X. 3 7)
Net p r i v a t e
(19.6X.62)

benefits

12 . 2 p er c ent

Net commercial

P r o p e r t y income

3 . 8 percent

Consumpti on expendi t u r e

[(1 9. 6 X . 3 8 ) X . 5 1 7 ]

Net non-user b e n e f i t s
Capitalists:
Tot al

16. 0 p e r c e n t

47 per cent

C a p i t a l i s t income

M i c h i g a n r e s i dent b e n e f i ts 8 7 . 2 p e r c e n t

The above numbers ar e d e r i ved by r e f e r e n c e to the
pr opor t i ons d e v el op ed i n t h e pr evi ous c h a p t e r :
fits

user bene­

ar e 63 p e r c e n t of t o t a 1 u s e r / n o n - u s e r b e n e f i t s ;

private

user b e n e f i t s ar e 7 3 . 8 p e r c e n t of user b enef i ts

and n o n - r e s i d e n t b e n e f i t s
user b e n e f i t s ;

amount t o 20 p e r c e n t o f p r i v a t e

r e s i d e n t commercial

percent of t o t a l

user ben ef i t s ar e 51. 7

commercia i user b e n e f i t s ; p r i v a t e non-user

benef i ts ar e 62 pe r c e n t o f t o t a l
51. 7 p er c ent o f commercial
Mi chi gan res i d e n t s .

non-user b e n e f i t s ; and

non-user b e n e f i ts accrues to

177
The r a d i c a l
cedures d i f f e r

analysis,

because the a l l o c a t i o n p r o ­

from the convent i onal

analysis,

assigns a

greater proportion

( 8 7 , 2 p e r c e n t ) o f highway b e n e f i t s

Michigan r e s i d e n t s

than t h a t a 11ocated i n the co n ve nt i on a l

an a l y s i s

(75.9 p e r c e n t ) ,

to

This r e s u l t d e r i v e s p r i n c i p a l l y

from the assumption t h a t capi t a 1 i s t benef i ts ar e not
shifted o u t - o f - s t a t e .
comparable,

In o r der to make the two analyses

11.3 percentage poi nts of capi t a l i s t benefi ts

would have to be assumed to be s hi f t e d

to non-res i den t s .

There is no reason to assume t h a t e x a c t l y

t h i s amount of

class goods benef i ts accrues to n o n - r e s i d e n t s .
1 obby

well

is,

of c o u r s e , powerful

as in Mi chi gan,

a t the n a t i onal

The hi ghway
l e v e l , as

and is respons i b l e in p a r t

f o r the

development of the i n t e r s t a t e hi ghway system i n Mi chi gan.
Further,

the highway and automobi l e l obbi es support e f f o r t s

to r e s t r i c t the use o f f e d e r a 1 gas tax moni es to highway
purposes and f e d e r a 1 hi ghway funds a re used to share the
costs o f highway c o n s t r u c t i o n wi t h s ta te governments on a
90-10 basis

for i n t e r s t a t e

highways.

Thus , t h e r e is a

basis f o r al l o c a t i n g some p r o p o r t i o n of cl ass goods benef i ts
to n o n - r e s i d e n t c a p i t a l i s t s ,
which to p o s i t a s p e c i f i c

a 1 though t h e r e is no basis on

number.

however, the i nc i d e nc e c a l c u l a t i o n s

For compa ra t i ve pur poses,
are made under the

assumption tha t t o t a 1 res i den t benef i ts are equa 1 in both
cases .

178

The r e s u l t s of both the c onve nt i ona l

and r a d i c a l

analyses o f highway ex p en di t ur es are shown in Table 15.
The procedures used to a l l o c a t e
are i d e n t i c a l
benefits
total

i n both a n a l y s e s , but the i nc i de nc e of t o t a l

shows the impact of a l l o c a t i n g

b e n e f i t s as

analysis.

cl ass goods b e n e f i t s

In the convent i onal

i nci dence is r e g r e s s i v e
proportional

analysis,

t h e r e is

little

35 . 7 p er c ent of
i n the r a d i c a l
the p a t t e r n of

in the lowest b r a c k e t s ,

between $5, 000 and $ 1 2 , 0 0 0 ,

the upper b r a c k e t s .
hand,

the s p e c i f i c goods b e n e f i t s

In the r a d i c a l

roughly

and r e g r e s s i v e in

analysis,

on the ot her

r e g r e s s i v i t y i n the l owest b r a c k e t s ,

a mixed p a t t e r n in the middle b r a c k e t s ,
in the top two b r a c k e t s .

and p r o g r e s s ! v i t y

179

TAELE 15
The D i s t r i b u t i o n of B e n e f i t s of
Highway E x p e n d i t u r e s ' 5^
Income
Bracket
($000)
Under 1
1-2

2-3
3-4
4-5
5-6
6-7
7-8
8-9
9-10
10-12

12-15
1 5-25
Over 25
TOTALS
MONEY
AMOUNT
($0 0 0 )

Co n v e n t i o n a l
Analysis
. 77
1 . 54
1 . 52
1 . 67
2. 36
2. 74
3. 74
4. 76
6 . 05
6. 55
14 .63
16. 35
28. 22
9. 1C
100.00

3. 28)
1 . 48)
1 . 06 )
. 89)
1 . 03)
. 92)
. 97)
. 93)
. 96)
. 95)
. 97)
. 76 )
. 75 )
. 32)
r~T74T

Radical
Anal ysi s
.42
. 96
1.15
1 .48
2. 03
2. 40
3. 17
3. 62
4.20
4.63
9. 80
11 .77
22. 49
31 . 8 8

.66)
( . 87 )
( . 77 )
( .77)
( .87)
( .80)
( .82)
( .70)
( .67)
( -67)
( -65)
( . 55 )
( - 60)
(1.13
1 0 0 . 0 0 T -74T
(1

288, 268

‘ F i g u r e s i n p a r e n t h e s e s ar e p e r c e n t a g e s o f
a d j u s t e d broad i ncome; o t h e r f i g u r e s ar e
p e r c e n t a g e s o f t he money amount shown a t
t h e bot t om o f t h e t a b l e ,
2
See t e x t f o r e x p l a n a t i o n o f t he d i s t r i b u t i o n
o f hi ghway e x p e n d i t u r e s .
Source:
Consumpt i on e x p e n d i t u r e s f r om Dougl as
R o b e r t s , " I n c i d e n c e o f S t a t e and Local
T a x e s ; " aut o o p e r a t i n g e x p e n d i t u r e s
f r om Musgr ave, e t . a l . , D i s t r i b u t i o n
o f F i s c a l Burdens and Benef' i t s T T a b l e 5 ,
p. 1 0 ; i mput ed r e n t f r om Tabl e 3 .

CHAPTER X
A CONVENTIONAL ANALYSIS OF HEALTH
AND HOSPITAL EXPENDITURES

Expendi tures
m i l l i o n in f i s c a l
total

f o r h e a l t h and h o s p i t a l s

1970.

t o t a l e d $238

This amount was 4 . 9 p e r c e n t of

net expendi t ur es by s t a t e and l o c a l

Michigan during 1970 (see Table 4,
these expendi tur es are o f t e n
in ot her i nci dence st u d i e s

governments in

Chapter I V ) .

Although

lumped t o g e t h e r f o r a n a l y s i s

(and in Census d a t a ) ,

it

is

possi bl e to d i s t i n g u i s h between e x p e n d i t u r e s f o r p u b l i c
heal t h and h o s p i t a l

s e r v i c e s and e x p e n di t ur e s

heal t h and h o s p i t a l

services.

It

i s d e s i r a b l e to d i s t i n g u i s h

between these two types of e x p en di t ur es
( 1 ) the p u b l i c and mental

f o r mental

f o r two reasons:

h e a l t h programs are a d mi n i s t e r e d

by two d i f f e r e n t s t a t e government depar t ment s,
b e n e f i t s which r e s u l t from the vari ous

and ( 2 ) the

types o f s e r v i c e s

o f f e r e d by the two departments are d i f f e r e n t enough to
deserve separat e d i s c u s s i o n .

180

181
The Nature of Hea1th Servi ces
and T h e i r B e n e f i t s
The Michigan Department of Pu bl i c Hea1th is
respons i ble f o r p r o v i d i n g a v a r i e t y of hea 1 th s e r v i ces to
Michigan res i d e n t s .

Among these a re p r o v i d i n g s upport to

county h e a l t h depa rtments and l i c e n s i n g hosp i t a 1 s t h r ough­
out the s ta t e .
provides

1 a bo ra

In a d d i t i o n ,

the s t a t e h e a l t h department

t o r y diagnos t i c s e r v i c e s ,

ine n t and d i s t r i b u t i o n ,
q ua li ty monitoring,

vacci ne d e v e l op ­

ep i demi ol ogi c a 1 s e r v i c e s , wat er

o c c up a t i on a l

heal t h s ta t i s t i cs development.

h e a l t h i nves t i g a t i ons and

1

County h e a l t h departments provi de se r v i c e s s i m i l a r
to those provi ded by the s t a t e h e a l t h department.
servi ces

These

i nc l u d e record keepi ng , 1 i cens i ng of hospi t a l s ,

control

of contagious d i s e a s e s ,

sani t a t i on and p o l l u t i o n

control

and p u b l i c h e a l t h c l i n i c s .

Many counti es al so

opera te h o s p i t a l s and sani t o r i a which ar e governed by
hospi t al

boards of t r u s t e e s .
The nat ure of the s e r v i ce s provi ded by the s t a t e and

county heal t h departments and expendi t ures f o r h e a l t h
purposes throughout the s t a t e are such t h a t s p e c i f i c
1

Heal t h
1970).

Michigan Department of Pu b l i c H e a l t h , Mi c h i g a n ' s
( Lansi ng:
Michigan Department of Publ i c Hea1t h ,
2

Kenneth Ve r Bur g, Guide to Michigan County Govern­
ment ( East Lansing:
I n s t i t u t e f o r Commun i ty Development,
Michigan S ta te Uni vers i ty , 1 972 ) , pp. V - 5 , 6 .
31b i d . , pp.

V- 1 0 - 1 3 .

182
beneficiaries,
di f f i c u l t
benefit

to

as

identify.

diagnostic,

These pr ogr ams
health

result
for

not o n l y

of

by

programs

these

t i o n s p e r f o r me d

for

t he

health

grams

increasing
valuing

value
health

to r e c o g n i z e
costs

t he f e e

s ta t e

of

this

eq ua l

such

valuing

the

costs

of

r e d u c i ng t h e s e

health

the
this

cost

of

with

providing

consideration while

usi ng

pro­

case and
of

seem t h a t

health

however, i t

spending

the cost

h e a 1t h

of

func­

raise

health

of

woul d

to ta 1 benefits

study,

of

di s ea se p e r

Thus , i t

generated

departments.

care

benef i ts

costs

an d

a consequence

educational

Cos t - b e n e f i t s t u d i e s

at

persons

as

health

the

services

programs.

e x t e r n a l i t i es
and

be

th rough

support

for

and c o u n t y

is

s e r v i ces
s er v i c e s .

sufficient

t h e a s s u mp t i o n

benefi t s .
no s t a t e - m a n d a t e d

policies

of

hospitals

health

res i d e n t s ,
the

would

res i dents

care

Ther e i s

assume t h a t

public

e x t e r n a l i t i es o f

the

understates

For t h e p u r p o s e s

but

services.^

benef i ts a t

probably

that

of

the

p r e v e n t i ve

problem of

value be nef its

compar e t he

better

Michigan

by t h e

groups,

educa t i o n a 1 and

and t h e

purposes.

income

Michigan

p r o g r a ms

The p o s i t i v e

once a g a i n

of

in

many

direct

of

Rather,

a broa d sp ec tru m

preventive,

better

me mb e r s

county

fee p o l i c i e s

and t h a t

these

policy

hospitals.

It

for
is

determining
reasonable

to

v a r y among c o u n t y - o p e r a t e d
practices

^ H e r b e r t Kl ar man, " S y p h i l i s
Dor f man, o p. c i t . , p. 370.

correspond
Control

to

those of

Programs,"

in

183
privately
county

operated

hospitals.

governments

purposes

which

are

bear

5

Thus,

providing

any

neither

subsidies

relation

to

the

the

for

state

nor

hospital

income

of

the

pati e n ts .
The
the

Mi c h i gan

Department

p r i n c i pa 1 p r o v i d e r

Since
been

1963,

however,

es t a b 1 i s hed

by

of

at

sim ilar:

diagnosis

and

inpatient,

t a t i on

of

both

health

or

treatment
or

disabled

of
of

of

in

Mi c h i g a n .

counties.

m e n ta 1l y

who

been

programs

government

emergency

persons

has

services

groups

levels

outpatient

men t a 1 l y

M e n t a 1 Hea1 t h

menta1 health

individual

performed

on an

mental

c o mmu n i t y

function'

of

i 11

basis
have

are

have
6

The

quite

persons

and

r e h a b i 1i -

r e c e i ved

prior

7

treatment.
directly
ill

and

In

operates

or

13 c e n t e r s

provides

the

sta te

supports

for

significant

programs .

15 f a c i 1 i t i es

m e n t a 1l y

support

men t a 1 h e a 1 t h

retarded

for

for

the

persons,

c ommuni t y

department

mental

m e n t a 11y

an d
health

8

Many
state

addition,

and

of

the

county

mental

health

departments

of

services

mental

provided

hea1th

a re

by

the

paid

for

5

I h i s i s t h e c a s e a t t h e I n g h a m Me d i
Lansing.
I n d i g e n t p a t i e n t s are r e f e r r e d to
s o c i a l s e r v i c e s depa r t m e n t f o r a s s i s t a n c e i n
c h a r g e s t h r o u g h v a r i ous g o v e r n m e n t p r o g r a m s
p a t i en t. may q u a l i f y .
I n the main, however,
p r o v i s i on f o r f e e s b a s e d on a b i 1 i t y t o p a y .

6

VerBurg,

7 1b i d . ,

p.

op.

c i t .,

p.

c a l Hos p i t a 1 i n
the h o s p i t a l ' s
p a y me n t o f t h e
f o r which the
t h e r e i s no

V- 1 5 .

V - l 7.

O
Michigan Department o f Mental Health ,
No. 3 ( L a n s i n g :
Michigan Department o f Mental
Sept ember 20, 1 9 7 3 ) .

L i nk , V o l .
Health,

4,

184
in

part

by

charges

are

admitted
public

charges

to

levied

to

state

pati e n ts ,

hospitals
for

who a s s u me

care;

full-pay

fu ll.

g

law

to

and

the

Communi ty
establish

persons
pay

persons

are

whom t h e
some

state

patients,

who

menta1 health
fee

schedules

fee

for

the

is

es t a b l i s hed

pay

These

Patients

three

classes:

partial-pay

the

costs

of

their

for

the

services

in

programs

a re

r e q ui r e d

by

based

care

into

pays ;
of

care.

basis.

divided

fraction

monthly
also

receiving

on an a b i 1 i t y - t o - p a y

patients,
and

the

of

on

a b ility

menta1ly

by

s ta te

1 aw on

e x t e r n a 1 i t i es

a r i se

from

to

pay, ^^

retarded
an a b i 1i t y - t o -

u a s i-s . 11
b
Although

prevention

of

violence

is

ties

not

are

health

ment a 1 i l l n e s s ,

a man i f e s t a t i on
a s wi d e s p r e a d

programs.

communicable,

Mental

and t h e

o f men t a 1 i l l n e s s
patient
mental

an d

her

health

programs,

but

are
or

of

the

as

in

illness,

these

externali -

is

1a r g e l y

lim ited

fam ily.
a re

number

to

Thus,

from

other
or

or p re ven tio n

thei ndi vi dual

the

to

which

c o n t a g i ous

the tre a tm e n t

sim ilar

of

result

nei t h e r

of

his

and

cases

those which

illness

treatment

in

effects

programs
the

e s p e c i a l 1y

the

benefi ts

those

beneficiaries

is

of

of

public

lim ited

h e a 1t h
to

mor e

^ M i c h i g a n Compi led Laws, 1970, V o l . I l l , S e c .
330.17(7) (Lansing:
Michigan L e g i s l a t i v e C o u n c i l, 1971).
1 0 MCL ,

op. c i t .,

Sec.

330.61 4

14 ( a ) .

1 ] MCL,

op- c i t . ,

Sec.

330. 658

8

( 1 ).

185
easily

identifiable

absence

of

tangible

i ntangi ble
part

of

individuals
spillover

spillovers

the

s p i 11 o v e r s

which

community
are

expenditure

also

to

of

effects.

res u l t

treat

ignored

incidence

because

the

There

from

the

relative
may

des i r e

men t a 1 i l l n e s s ,

in

th i s s tudy

be

and

on

but
in

the

these

other

studies.

The A l 1 o c a t i o n o f B e n e f i t s
in Previous Studies

A vari ety
benefits

of

studies.
on

the

of

health

Ea p e n

recipients

in

and

and

assumption

that

each

me t h o d

of

allocating

benefits.
bution
the

income

This

of

impact

of

the

in

and

hospital

expenditures

is

Daicoff

allocated

12
13

Ea p e n

by

and

Brownlee,

^Ross,

op.

benefits

in

the

Brownlee

the

same

for

on

estimated

op_.

op^

c it . ,

uses

13

Ros s

allocating
the

an

actual
in

c i t .,

pp.

hospital
i nc ome

ab i 1 i t y - t o - p a y
of

and

distribution

34.

73-74.

uses

Illin o is ,

recipients

c i t .,
p.

to
average

welfare

Eapen,

previous

accrue

a l l o c a t e a sma11 f r a c t i o n
to

the

the

hospitals

charged

a 11 o c a t e

rec i p r o c a 1 o f

b a s ed on

public

to

hospi t a 1 expendi tu r e s

benefits.

series

is

fees

Musgrave

der

12

hospital

series

patients

the

class.

used

expendi t u r e s

capita

to

distributive

been

a 11 o c a t e

per

p r o p o r t i on

in

has

hospital

Ea p e n

i n c o me

G illespie's

methods

pp.

84

and

d is tri­
including
b a sis.^

health
the

of

remain­

income

87.

and

of

186

pati ents

in

allocate

hospital

of

public

pati ents

Smo1 e n s k y
hospital

in

and

hospi t a l s .
benefits

funded
the

Tax

grave

Reynolds

and

the

general
health
to

Ta x

of
In

of

health

with

s um,
and

by

the

estimated

adjusted

about

inverse

Health
to

the

for

be g e n e r a l

be!ow

goods

not

i ncome
an d

separately

usually

a 11 o c a t e

75 p e r c e n t

group.
to

and

25

the

structure,

the

other

hand,

and

are

distributed

the

to

income

or

by

benefits

on

of

to

the

are

benefits

involve

inversely

between

as

18

a 11 o c a t e

of

Mus ~

percent

proportion

t y p i c a 11y

distribution

as

Tucker,

expendi tu re s

in

expendi tu re s

fee

Brownlee,

basis

$7,500

used

a l 1o c a t e d

G illespie,

a 11 o c a t e

expendi tu r e s

the

been

Ross,

health

i nc ome

relationship

expendi t u r e s ,

do

fam ily

procedures

hospital

patients,

Eapen

each

hospi t a l
of

of

w h i 1e R e y n o l d s

Smo 1 e n s k y ,

on a p e r

the

16

have

a 11 oc a t e
and

in

a l. ,

distribution

studies.

and

incomes

chiIdren

distribution
either

Ea p en

expenditures

fam ilies

n u mb e r

previous

Foundation

goods .

et

17

expendi t u r e s
in

a l .,

the

Foundation

genera 1 goods
et

by

Musgrave,

hos pi t a 1s ,

expenditures.
Health

15

the

i ncome,
of

an a s s u m p t i o n
and

i ncome.

usually

a s s umed

on a p e r

family

basis.
15
16

Musgrave
Musgrave,

and
et

Daicoff,

op.

a 1.,

ci t .,

17

op .

R e y n o l d s an d Smo1 ens k y ,
F o u n d a t i o n , op. c 11 . , p . 12.
18

Eapen and Eapen,

ci t . ,

(1),

p.

p.

183.

34.

op.

o p . c i t . , p . 87,

ci t . ,

p.

42;

Ta x

187
Th e A l l o c a t i o n

This
pond

study

closely

to

expendi t u r e s
v a r i ed
from

nature,

hea1th

uses

those

are

of

Benefits

a l 1o c a t i ve

in

in

the

a 11 o c a t e d

as

general

significant

previous

the

di f f i c u l t y

i ndi vi d u a 1 r e c i pi e n t s

and

the

these

to

benefits

justified
i ncome

c i a ted

an

and

by

Eapen
in

a re

each

i ncome

da t a

are

pati ents
for

the

case

to

the

class .

of

by
are

Michigan

fee

past
is

by

because

of

which

arise

these

s t u d i es

i nc ome

of

costs

on

to

the

same

is

allocate

part
the

the

by

p r i nci pal
asso-

lost

i ncome.

same m a n n e r

family

fam ilies

based

basis,

and

one-half

function.

mental

retarded,

1 9 1 bi

p.

87.

procedure

a 11 oc a t e d

the

on
the

procedure

is

distribution
hospi t a l s ,
and

their

no b e t t e r

costs

in

a per

by

or

One o f

a 1l o c a t e d

u tility

structures

probably

avoidance

on e- h a 1f

This

men t a 1 l y

d .,

Hea1t h

i d e n t i f y i ng

basis.

reci proca1 of

19

studies.

men t a 1 h o s p i t a 1 e x p e n d i t u r e s ,

a va i 1 a b 1 e f o r
in

of
are

Maital

benefi ts

proportion

one

income,
the

in

benefits:

allocated

used:

the

in

basis

family
is

corres­

goods

of

benefits

benefits

broad

I n the
benefits

care

g e n e r a 1 goods

i n come

family

a per

illness;

h e a 1th

by a d j u s t e d
by

on

lack

tendency

a per

health

with

Therefore,

The

allocating

part

of

other

on

than

and

benefits

as

pay.

which

e x t e r n a 1 i t i es

servi ces,

on a b i 1 i t y

Study

procedures

used

the

This

because

a per

as

used
of

Ea pen

family

average

basis

because

i ncome

for

an d

income

including
fees

the

in
no

for
cen t e r s

mental

188
health

services

a b ility

to

accrue
cos t s

pay

at

a nd n e t

to

benefi ts

hospital

w ill

state-level
health

is

of

hospital

purposes.

some

At
and
20

and

A c c o r d i ng

to

levels

government

mg

for

health

most

rather
exist

of

than
to

hopsital

of

the

da t a .

Census

into

Ce n s u s

hospital

of

to

for

of

and

is

for

men t a 1
pro-

of

for

s p e n d i ng
of

hospi t a l s
of

government
all

ci t . ,

local

to t a 1 spend-

mental

h e a 1th

is

spending

a s s u me s
for

t h i s a s s u m p t i on

to

fa cilitie s,

describe

study

however ,

the

mental
is

general

although

relative

that

tha t

Bureau of
p . 27.

a llo ­

hospitals
data

do

not

proportions.

25 p e r c e n t

health

probably

of

purposes.

39 p e r c e n t

of

local
The
t o t a 1 s ta te

U. S. D e p a r t m e n t o f Commerce, Bur eau o f t h e
S t a t e G o v e r n m e n t F i n a n c e s i n 1 9 7 0 ( Wa s h i n g t o n , D . C . :
Government P r i n t i n g O f f i c e , 1 9 7 1 J , pp. 3 2 - 3 3 .

op.

60

Governments

76 p e r c e n t

government,

hospital

20

21

Only

approximately

1oca 1 l e v e l s

s p e n d i ng

hea1th

hospitals."

their

this

from

p r o p o r t i ons

amounted

the
i nc ome

of

level,

by

with

t o t a 1 cos t s

hospi t a 1 e x p e n d itu r e s
1 9 67

of

i ncome.

the

state

rise

on

benefits

proportion

w ill

grouped

programs

levels

spending

res u 11 o f

the

based

?1

an d

accura t e l y

Therefore,

of

are

thi s source,

Local
cate

health

paid

wi t h

are

Therefore,
the

available

Th e

indication

hospitals

of

decline

not

government

because

s e r v i ces

expenditures

hea1th

of

income).

breakdown

c a t e g o r 1e s .

percent

vides

care

to

income

menta1 h e alth

A p r e c i se
and

levels

(inverse

inversely
of

all

Ce n s u s
U.S.

t he Census , 1967 Census o f Go v e r n me n t s ,

189

and

local

devoted
is

for

spending

to

mental

public
The

health
that

and
39

i ncome
the

in

is

general

and

procedure
hospital

each

benefits

there

health

which

to

and

the

allocate

allocated

by

22

as

are

The

study

and

( 61

study

to

the

remaining

goods

average
61

broad

percent

benefits

a 1 1 o c a t i ng

population,

of

a s s u me s

specific

for

percent)

benefits

g e n e r a 1 goods

this

i ncome

this

is

services.

the

inversely

class.

in

in

purposes

remainder

hospital

benefits

allocated

benefi ts

hospital

general

these

income

a re

and

expenditures

of

are

care

used

a preference

22

health

health

percent

benefits

for

rather

of

an d

these
than

i

benefits

Wher e

Hi
Pi
Mi

Solving

-

' The p r o c e d u r e used
is the f o l l o w i n g :

by

Eapen

and

Ea p e n

= h o s p ita l e xpenditure a llo c a te d to
= p o p u l a t i o n i n each i ncome g r o u p ;
= mean i n c o m e i n e a c h i n c o m e g r o u p ;
for

(1)

yields

H,

=

Z

J

.

p,

l
i
(2)

And n
1

V

1

Hi

=

i

I Pji-Vi

v

Mi

n

•i

El

1 M"i

to

each

allocate

group;

190

strictly
and
avail

on a per f a mi l y bas i s .

Eapen r e c ogni z e ,

It

seems l i k e l y ,

as Eapen

t h a t poor persons are more l i k e l y

to

themsel ves of p u b l i c h e a l t h s e r v i c e s , w h i l e the

oppor t un i t y costs of l o s t

income ar e g r e a t e r f o r

upper-

income f a m i l i e s .
As Tabl e 16 shows , the s p e c i f i c

goods benef i ts of

heal t h and h o s p i t a l

expendi t ur es ar e very regr es s i vel y

distributed.

b e n e f i t s a re al s o c o n s i s t e n t l y

Tot al

r e gr es si ve under Assumptions 1 - 3 ,

but become p r o g r e s s i v e

in the top br acket under Assumptions 4 and 5.
of r egr essi vi ty under the f i r s t
genera 1 goods b e n e f i t s

The p a t t e r n

t h r e e assumpti ons about

is s i m i l a r to t he r e s u 1 ts of the

two most r ecent s ta t e - 1 evel

studies.

23

A l 1oca t i ng the s p e c i f i c benef i ts of hea1th and
hosp i t a 1 expendi t ur es

i nve r s e l y to mean broad i ncome

makes them an i mporta n t eq ua 1 i z i ng i n f 1 uence on the d i s ­
t r i b u t i o n of income.
total

They are such a smal l

adj ust ed broad i ncome,

however,

f r a c t i o n of

that i t

is

unlikely

t hat ot her a l l o c a t i v e procedures would change t he o v e r a l l
p at t er n of the i nci dence of t o t a l

expenditures.

Since the l e f t

hand si de of t h i s equat i on i s t o t a 1 hospi t a l
Hi
costs and e v e r yt hi ng but )’ p-r is known on the r i g h t hand

si de,

one can sol ve f o r
23

and s u b s t i t u t e

Ross, Ok 1ahoma, op. c i t . ,
Eapen and Eapen, op. c i t . , p . 107.

pp.

i n t o equat i on

89 and 91;

and

( 1 ).

TABLE 16
The D i s t r i b u t i o n cf Bene f i t s From Heal t h and Hospi t al
Convent i onal Analysis' *
Income
Bracket
($ CC0)
Under 1
1-2

2-3
3- 4
4- 5
5-6
6-7
7- 8
8- 9
9-10
10-12

12-15
15-25
Over 25
TOTALS

1o t

S p e c i f i c Goods
Benef i t s 2
51. 00
15. 33

( 70 . 0 4 )
( 4.71 )
6 . 6 6 ( 1. 4 9)
4. 02 (
. 69)
2. 76 (
. 39)
2.39 (
. 26)
2.14 (
. 18)
2. 26 (
. 14)
2.26 (
. 12)
. 09)
1.86 (
3. 27 (
. 07 )
3. 02 (
. 05)
2. 76 (
.02)
.25 ( *
100.00 (
. 24)

a 1 Heal t h and Hospi t al

Assumption 2

23. 71
10. 35
5. 90
4. 42
3. 67
3. 62
3. 72
4. 28
4. 64
4. 38
8 . 26
9. 22

19. 99
6. 45
3. 25
2. 42

11 . 2 0

2. 63
100.00

MONEY

92, 820

Bene f i t s

Assumption 1

AMOUNTS
($000)

Expendi t ures - -

238, 000

( 83. 51 )
( 8.16)
( 3. 3 8 )
( 1 -93)
( 1 . 33)
( 1-01)
(
-80)
(
- 69)
(
.61 )
(
. 52)
(
. 45)
(
. 36)
(
- 25)
. 08)
(
. 61)

2.11

2. 28
2. 58
3. 20
3. 74
3. 86
8. 13
10. 89
18.21
12.88
99.99

3

(70.41)
( 5.09)
( 1.86)
( 1.06)
(
- 76)
(
- 63)
(
- 55)
(
-52)
(
. 49)
(
. 46)
(
. 44)
(
. 42)
(
-40)
(
.38
(
- 61)

TABLE 16 ( c o n t ' d . )
3

Income
Bracket
( $000)

Tot al Heal t h and Hospi t al Be ne f i t s
—-------------------------------------------------------------------------------------------------------Assumption 3
Assumption 4
Assumption 5

Under 1
I -2
2-3
3-4
4-5
5-6
6-7
7-8
8- 5
9- 10

21 . 85
8 . 40
4. 57
3. 42
2. 83
2. 95
3. 15
3. 74
4. 19
4. 12
8 . 20
10. 05
14. 70
7. 76
99. 99

10-12

12-15
15-25
Over 25
TOTALS

(76.96)
( 6.63)
( 2. 6 2 )
( 1. 5 0 )
( 1- 04)
(
. 82)
(
.68)
(
.61 )
(
. 55)
(
• 49)
(
- 45)
(
. 39)
(
- 32)
(
-23)
(
.61)

19. 93
6. 15
2.88

2. 03
1 .69
1 .76
1 .95
2.41
2. 83
2. 99
6. 40
9. 18
17. 66
22. 15
100.00

(70.17)
( 4.85)
( 1. 6 5)
(
. 89)
(
-61 )
(
. 49)
(
-42)
(
- 39)
(
. 37)
(
- 36)
(
- 35)
(
. 35)
(
. 39)
. 65)
(
-61)

19. 93
6. 16
2.88

2. 03
1 .70
1 .77
1 .96
2. 42
2. 85
3. 00
6. 44
9. 23
17. 70
21 .93
100.00

(70.18)
( 4.86)
( 1 . 65)
(
- 89)
(
.61 )
(
-49)
(
. 42)
(
-39)
(
-37)
(
. 36)
(
-35)
(
• 36)
(
. 39)
.64
(
- 61)

^ Le s s than . 01.
Fi gures in parentheses are percent ages of adj ust ed broad income from
Tabl e 6 ; ot her f i g u r e s are percent ages of the money amounts shown at
othe bottom of the t a b l e .
6See t e x t f o r ex pl a na t i o n of the d i s t r i b u t i o n of s p e c i f i c goods
2 b e ne f i t s .
See Chapter I I
f o r ex pl a na t i on of Assumptions 1- 5.

CHAPTER XI
A RADICAL ANALYSIS OF HEALTH AND
HOSPITAL EXPENDITURES

I n t he r a d i c a l

analysis,

the p r a c t i c e of making t he

cl ass s t r u c t u r e of s oc i et y and the i nst i t u t i onal

r e l a t i on-

ships of c a p i t a l i s m endogenous to the model puts the
convent i onal

i n t e r p r e t a t i o n of the r o l e „ T the p u b l i c

sect or i n the hea l t h care system i n ques t i on.
pal

reason f o r the d i f f e r e n c e s

is t h a t the convent i onal

model

grams i n an i n s t i t u t i o n a l
the o t he r hand,

The p r i n c i ­

i n a n a l y s i s which a r i s e
examines p u b l i c h e a l t h p r o ­

vacuum.

A radical

analysis,

on

pl aces p u b l i c he a l t h programs i n the

broader c o nt ex t of the e n t i r e he a l t h syst em, and,

in f a c t ,

iri the cont ex t of the e n t i r e soci oeconomi c system of
capi tal i sm.
The a n a l y t i c a l

framework of the r a d i c a l

model

calls

i nt o quest i on a basi c assumpti on about h e a l t h car e i n t he
convent i onal
".

.

model:

t h a t the a t t a i n me n t of h e a l t h

. the u l t i m a t e soc i a l

o b j e c t i v e of the medi cal

is
syst em. "

^Er i c H e l t , "Economic Det ermi ni sm:
A Model o f t he
P o l i t i c a l Economy of Medi cal Car e, " I n t e r n a t i o n a l Journal
of Heal t h S e r v i c e s , Vol . 3, No. 3 ( 1 9 7 3 ) , pp ” 475- 485.

193

194

The f o l l o w i n g s e c t i o n examines t h i s assumpti on i n an
a n a l y s i s of t he h e a l t h care system i n the U. S.
The P o l i t i c a l

Economy of Hea1th Care

The orga ni za t i on of the p r i vat e h e a l t h care system
in

the U. S. has become i n c r e a s i n g l y dominated by the needs

of the p r o f i t-ma ki ng i n s t i t u t i o n s which domi na t e the p r ov i s i o n of hea1th s e r v i c e s .
are the American Medi cal
pani es,

Among thes e domi nant groups

Associ ati on,

the l a r g e drug com­

manuf act ur er s of hospi t a 1 equi pment , p r i v a t e

pr of i t - maki ng hospi t a l s and the p r o v i de r s of hea 1 th i n s u r p
ance l i k e B1ue Cr oss/ Bl ue S h i e l d .
The p r o f i t o r i e n t a t i o n
of the p r i v a t e hea l t h care systern has i mpor t ant i n f l u e n c e s
on both the reasons f o r t he exi s tence of p u b l i c h e a l t h
programs and the ki nds of h e a l t h care r e c e i ved by di f f e r e n t
groups i n soci e t y .
The e n t r y of government i n t o the hea1th care systern
is

ad i r e c t

consequence of the p r o f i t mo t i ve of t he p r i vat e

heal th i n d u s t r y .

Medi cal

techno 1ogy has become i n c r e a s i ngl y

complex and the t r a i n i ng of medi c a 1 personnel

and the

d e l i v e r y of hea 1 th s e r v i c e s have become more s p e c i a l i z e d .
These t rends mean t h a t

t he p r i vat e he a l t h i n d u s t r y was

r equi r ed to make maj or

i nvest ment s i n physi cal

capi t a l

and human

w i t h o u t what t he i ndust r y consi dered adequate
2

Gor don,

o p . ci t . , p.

318.

195
financial

guarant ees t h a t the i nvest ment s would be p r o f i t ­

able.^
The f i r s t

response to the d e s i r e f o r a p r o f i t a b l e

i nvest ment c l i ma t e was t he r i s e of t he p r i vat e hospi t a l
i nsur ance i n d u s t r y , of which B1ue Cross was the p i o n e e r .

4

The expansi on of the t h i r d - p a r t y payment systern removed
some o f the u n c e r t a i n t y about f ee payment i n i ncreas i ngl y
expens i ve hospi ta 1 f a c i 1 i t i e s .
The i nc r e a s i n g
cost s,

t e c h n o l o g i c a l , t r a i ni ng and d e l i very

comb i ned wi t h i ncrea sed demands f o r equal

he a l t h

care f o r e v e r y o n e , 1 ed to a l a r g e r government r o l e i n the
area of hea1th c a r e .

Government programs began by pr o­

vi di ng wel f a re and s u bsi di z e d medi cal

c a r e - - wh i ch f u r t h e r

enhanced the p r o f i tab i 1 i t y of the pr i vat e h e a l t h i n d u s t r y - and have evo 1 ved i n t o programs which i nc l ude l a r g e - s c a l e
f i na nc i ng of var i ous h e a l t h progr ams. ^
Another way in which the d e s i r e f o r p r o f i t s

has

i nf l ue n c e d the h ea 1 th car e sys tern is the o r i e n t a t i o n

in

medi cal

or gani c

t echnol ogy and r esear ch toward the s p e c i f i c ,

causat i on of di s e a s e .
research s t a f f s

Thi s o r i e n t a t i on gi ves r i s e to 1arge

i n hospi t a 1 s and a growi ng r esear ch or i en t a -

t i on among medi cal

p r o f e s s i o n a l s which encourages gover n­

ment sponsored r esear ch pr ogr ams.
3
4

Helt,

op.

ci t . ,

p.

479.

Barbara and John Eh r e nr ei ch, The Ame r i c a n Heal t h
Empi re (New York:
Random House, 1 970) , p. 126.
5
H e l t , op. c i t . , p. 480.

196
By f ocusi ng on s p e c i f i c or gani c e t i o l o g y ,
causal

el ements of di seases are i gnor ed,

and consequent l y

the causes of many di seases remain undi scover ed.
as r e l a t i vel y more medi cal

personnel

ot he r

Thus,

enter research-

ori ented , ra t h e r than p a t i e n t - o r i ented f i e l d s ,

the

accessi b i 1 i ty to qua 1 i ty medi ca 1 care has dec 1 i ned .
A third

6

r e s u l t of the p r o f i t - m a k i n g bi as o f the

pri vat e h e a l t h care systern i s what A l f o r d c a l l s a " twocl ass" system of he a l t h c a r e .

The poor r ecei ve subsi di z e d

care which i s s i g n i f i c a n t l y d i f f e r e n t both q u a l i t a t i v e l y
and quant i t a t i vel y from t h a t r ecei ved by p a t i ents who
e i t h e r pay t h e i r own fees or ar e covered by i nsur ance.

7

Often poor p a t i ents are used as r esear ch obj ec t s f o r the
training

of d o c t o r s , r a t h e r than r e c e i v i n g adequat e t r e a t ­

ment f o r

t h e i r probl ems.
The nat ur e of the p r i vat e h e a l t h care system,

domi nated by monopoly el ements i n the drug i ndust r y and
the r e s t r i c t i v e p r a c t i c e s

of the AMA, has r e s u l t e d i n a

heal t h care sys tern in which "costs go up a s a r e s u l t of
the e s t a bl i s hme nt of new, expensi ve programs .
bility

The a c c e s s i -

o f care goes down a s a r e s u l t of the p r o l i f e r a t i on

of s p e c i a l i z e d ,
6 1b i

hi gh- t echnol ogy , r e s e a r c h - or

d . , pp.

477- 480.

^Robert A l f o r d , "The P o l i t i c a l Economy of Hea1th
Care:
Dynamics wi t h ou t Change," P o l i t i c s and Soci et y
( Wi nt er , 19 72 ) , p. 147; see al so Ehren r e i ch , o p . ci t . ,
pp. 14- 16; Rodger Hur l ey , "The Heal t h C r i s i s o f the Poor , "
in The Soci al Or g a n i z a t i on of H e a l t h , e d . by H. P. D r e i t z e l
(New' York:
MacMi 11 an , 1971"]', pp.' 104- 110.

t e a c h i n g - o r i e n t e d h e a l t h care u n i t s . "

o

And government

programs have "come i n t o bei ng s e q u e n t i a l l y as unbearabl e
g
def ect s ar e uncover ed" i n the pr i va te h e a l t h car e system.
As Gordon ma kes c l e a r ,

however , the organi z a t i on of the

hea 1 th care sys tern makes i t
of the sys tern w i l l

unlikely

t h a t the i r r a t i ona 1 i t y

be r a d i c a l l y changed to provi de q ua 1 i t y

hea1th care f o r ev e r y one .

A fundament al

r e s t r u c t u r i n g of

the p r i v a t e care i ndust r y i s pr obabl y not p o s s i b l e wi tho ut
changes i n the ways the capi t a l i st system i t s e l f
o r gani z e d.

10

is

Thus, we ar e 1 e f t wi t h a h e a l t h care system

which can be c h a r a c t e r i z e d as one i n which p a t i e n t care
( t he a t t a i nment of h e a l t h )

is o f t e n secondary to p a t i e n t

"use" f o r r esear ch and t r a i n i ng purposes , which di r e c t l y
meet the accumul at i ve needs o f the p r i v a t e hea 1 th i ndus t r y .
I d e n t i f y i n g t he Benefi ts and B e n e f i c i a r i es
of Spending f o r Hea1th and Ho s p i t a l s
The c r i t e r i on of s o c i a l 1y necessary costs can be
appl i ed to spendi ng f o r hea1th and hospi t a l s .
gl ance,

i t mi ght seem t h a t

socially

At f i r s t

spendi ng f o r these purposes i s

necessary to ma i n t a i n the pr oduct i vi t y of the
^Al f ord,

op. ci t . , p.

147.

9

Dr. James A. Shannon, f ormer di r e c t o r , Na t i onal
I n s t i t ut es of Hea1t h , quoted i n A l f o r d , op. c i t . , p. 153.
^ Go r d o n ,
11

pp.

op.

c i t .,

Ehrenr ei c h , op.
xi - xi i i .

p.

cit.,

318.
pp.

24- 27 ; D r e i t z e l ,

op.

cit

198
work f o r c e .

However,

the a n a l y s i s of t he h e a l t h care

system i n the pr ecedi ng s e c t i o n and a c l o s e r

l ook a t the

r e l a t i o n s h i p between i l l n e s s and income y i e l d

a different

i n t e r p r e t a t i on o f the costs of hea 1 th c a r e .
One can argue p e r s u a s i v e l y t h a t the i nci dence of
illness

is

n e g a t i v e l y a s soc i a ted wi t h

i ncome .

For exampl e,

57. 6 per cent of the p op u l a t i o n wi t h i ncomes under $7, 000
in 1 964 s u f f e r e d from one or more chr oni c i 11 n e s s e s , wh i l e
only 42. 9 per cent of t he p op ul a t i o n wi th incomes over
$7, 000 s u f f e r e d from chr oni c condi t i ons.

12

F u r t h e r , the

d i s t r i b u t i o n of i ncome is a r e s u l t of the worki ngs of our
c a p i t a l i s t system.

Thus, i f

the systern i t s e l f

f or p a r t of the hi gher i nc i de nc e of i l l n e s s
popul at i on

i s to blame

among the

to which some pub l i c hea 1 th s e r v i c e s ar e di r e c t e d ,

the p r o p o r t i on of spendi ng f or p u b l i c h e a l t h devot ed to
these ser vi ces shoul d be co ns i dered to be s o c i a l l y

unnec-

essa ry .
There seems to be room f o r
and si ckness ar e causa 1 l y r e l a ted .
i nci dence of d i s a b l i n g
f i c a n t fa c t o r

in t h e i r

peopl e poor

.

12

.

14
p.

93.

d.,

doubt t h a t pover t y

F u r t h e r , the high

di seases among t he poor i s a s i g n i 13
rema i ni ng p o o r :
"si ckness makes

. pover t y makes peopl e s i c k . "

Hu r l e y ,

1 3 1b i

little

op . c i t . ,
pp.

p.

14

Poor peopl e

94.

86- 95.

D r . Chari es Mayo, quoted i n H u r l e y ,

op. c i t . ,

199
suffer

" f i v e ti mes as much mobi 1 i t y 1 imi t a t i on from chroni c

illness

as do the r i c h ,

and al most f i v e times as many ar e

conf i ned to t h e i r homes."

15

“

I n addi t i on to the i n t e r r e l a t i o n s h i p between
pover t y and si c knes s,

t he reasons f o r p u b l i c and ment a 1

heal t h programs des i gned to meet the needs of t he poor ar e
a r e s u l t of the i n a b i l i t y
to meet the needs of a l l

of the p r i va t e h e a l t h sys tern
the peopl e i n s o c i e t y .

The p r o f i t

ori enta t i on of the pr i va te he a l t h system means t h a t i ndi gent
pat i ents ei t h e r do not r e c e i v e care
i nst ead of cured or ai d e d )

( o f t e n be i ng s t udi e d

or t hey ar e pushed o f f on p u b l i c

or p u b l i c l y s ubsi di zed f a c i 1i t i e s .
poor peopl e,

not onl y i n p u b l i c

The care r e c e i ved by

f a c i 1 i t i es but a l s o in

p r i v a t e f a c i 1 i t i es under s ubsi di es , i s demonstra t a b l y
deficient re lative

to the ca re r ecei ved by peop 1 e who pay

t h e i r own fees or whose f ees a re covered by hea 1 th
ins ura nee.

16

In the mental

he a l t h a r e a ,

the soci al

contro1

aspects of h e a l t h care become an i mpor t ant consi d e r a t i on
in e v a 1ua t i ng the benef i ts of the hea1th system.
cont rol

mechani sm works i n two ways:

given the t ask of i d e n t i f y i n g
and ".

.

H u r 1ey , op.

^See

note 6 .

c i t .,

psychi a t r i st s are

s o c i a l 1y d i s r u p t i v e p e o p l e ,

. the symptoms of mental
15

The soci al

pp.

illness

94-95.

can be seen as

200

val ue choi ces of how men shoul d not behave. "
menta 1 i l l n e s s

17

Thus,

i s no t o b j e c t i v e l y determi ned but i s d e f i ned

in a c o n t e x t of hi dden v a 1 ues which ar e f u n c t i o n s of the
s o c i e t y i n whi ch they ar e imposed.
judged me n t a l l y i l l ,
which ar e ".
cl ass model
11

When poor peopl e ar e

the s tanda rds which p r e v a i l

a re those

.

. conce pt ua 1 l y i dent i c a 1 to the mi d d l e 1O
a p p l i e d to p r i va t e p a t i e n t s . "

i s r eas ona bl e to assume, i n a cl ass domi n a t i on

model , t h a t a c c e p t a b l e b ehav i or norms ar e those which
correspond to t he val ues and i n t er es ts of t he domi nant
cl ass.

The s o c i a l

control

f u n c t i on of t he di agnos i s and

t rea tment of t he men t a 1 l y i l l

is a means of ma i nt a i ni ng

the s t at us quo and r e i n f o r c i ng the s o c i a l
c a p i t a l i s t system.

Thi s

relations

of t he

f u n c t i on i s perf ormed p r i nci p a l l y

by the s t a t e which oper at es a l a r g e number of ment a 1 h e a l t h
fac i 1 i t i es .
It

i s appar ent t h a t

the b e n e f i t s

from t he p u b l i c

pr o v i s i o n of many he a l t h s e r v i c e s may be more complex in
a radi c a 1 model
analysis.

than t hey appear in the convent i ona 1

On the one hand,

t her e ar e benef i ts to the gener al

populace from di sease c o n t r o l

and h e a l t h educa t i on programs ,

b e n e f i t s whi ch ar e the same as those di scussed i n the
17

Thomas S c h e f f , "On Reason and Sani t y : Some
I mp! i cat i ons o f Psychi a t r i c Thought ," i n
op. c i t . , p. 294.
1R
Harry Bri ckman , "Ment a1 He a l t h and Soci al Change :
An E c o l o g i c a 1 Pe r s p e c t i v e ," i n D r e i t z e l , op. c i t . , p. 18.
Political
Dreitzel,

201

previ ous c h a p t e r .
fits

It

i s al so obvious t h a t t her e ar e bene­

which accrue as cl ass goods to the c a p i t a l i s t c l a s s .
In the case of pub l i c

h e a l t h , cl ass goods b e n e f i t s

a r i s e because of t he unde r l y i ng reasons f o r t he need f o r
publ i c hea1th pr ogr ams,

A principal

cause f o r t hese p r o ­

grams is the m a l d i s t r i b u t i o n o f i ncome and t he r easonabl e
cont ent i on t h a t pov er t y and si ckness ar e c a u s a l l y r e l a t e d .
The a l l e v i a t i o n

of pover t y would a l s o e l i mi n a t e , ,

degr ee, the need f o r p u b l i c subsi di es
of the p o o r .

Alternatively,

be taken from the c o n t r o l

to a 1 arge

f o r t he hea 1 th needs

t he hea1th care system could

of the p r i vat e s e c t o r and

r e o r i e n t e d to the ends of t r ue p a t i e n t - c e n t e r e d c a r e .
This opt i on would onl y serve to i ncrease the qua1i t y of
care r e ce i ved by the p o o r ; i t would not a ddres s the f unda­
mental

problem of t he h e a l t h needs of t he p o o r .

latter alternative,

Thi s

of c o u r s e , would be opposed not onl y

by the Ameri can Medi cal

A s s o c i a t i o n , which opposes al most

every h e a l t h ca re r e f o r m , but al so by a l l

o t he r el ements

in the capi t a 1 i st cl ass because of t he t h r e a t of a domi no
e f f e c t of St a t e c o n t r o 1 over p r i v a t e
Many peopl e who are e i t h e r

industry.

i nsur ed or abl e to pay

f or t hei r own h e a l t h ca re have no i n c e n t i v e to change the
e x i s t i n g he a l t h ca re system.

In f a c t f t hey mi ght l ose by

a merger of p ub 1 i c and p r i va t e systems because t he t o t a 1
quanti ty of he a l t h care a v a i 1 ab 1 e f o r them to consume

202

might d e c l i n e .

19

Thus,

t her e i s a b u i l t - i n

r e s i s t a n c e to

change of the h e a l t h care system which is a r e s u l t of t he
nat ur e of the capi t a 1 i s t system.
Thi s i n t e r p r e t a t i on of the o r g a n i z a t i o n and c o n t r o l
of the p u b l i c hea l t h system l eads to the concl usi ons t h a t
the system i n p a r t , a t l e a s t ,

exists

because of t he s o c i o ­

economic system and y i e l d s b e n e f i t s which accrue in p a r t
to the domi na nt cl ass

i n s oc i e t y .

An even b e t t e r b e t t e r case f o r cl ass goods can be
made i n the a n a l y s i s of mental

h e a l t h programs.

cont r ol

h e a l t h system i s the p r i n c i ­

pal

f u n c t i o n of the mental

The s o c i a l

reason f o r the ex i s t e nc e of cl ass goods b e n e f i t s .

i mportanee of the s o c i a l

cont r ol

The

f u n c t i o n d er i v es from the

nat ure of a c a p i t a l i s t soci et y and the nat ur e of the causes
and t r e at ment of ment a1 i 11ness.

An i mpor t ant e 1ement i n

th e t r e a tment of men t a 1 i 11 ness is the or i e n t a t i o n to the
d oc t r i ne of s p e c i f i c e t i o l o g y of di s e a s e .

20

Adherence to

t hi s d o c t r i ne means t h a t the causes of many di seases ,
i nc l u d i n g men t a 1 i l l n e s s ,

have not been di sc ove r ed, and i n

f a c t may never be di scover ed because t her e may be many
causes of a s i n g l e i l l n e s s .

21

In essence, the causes of

some men t a 1 i l l n e s s may 1 i e in the r e l a t i o n s h i p of peopl e

^Alford,
^Helt,
21

op. c i t . ,

op. c i t . ,

I b i d . , p.

477.

p.

p.

163.

477.

203
to t h e i r soc i a l

and phy si ca l

envi r onment s,

and i t

i s these

r e l a t i o n s h i ps which our h e a l t h system t ypi c a 1 l y i g nor e s.

22

Thi s a n a l y s i s of the diagnoses and t r e a t me n t of
menta 1 i l l n e s s

is i mpor t ant f o r t he r adi cal

analysis

beca use the nat ur e of p roduc t i on i n the capi t a 1 i s t system
engenders a 1 i en ta t i on among workers whi ch i t s e l f may be a
cause of a b e r r a n t behav i or .
1i

I f the seeds f o r menta1 i 11nes s

e i n p a r t i n the soci oeconomi c sys tern and the c r i t e r i a

by which behavi or is j udged are al so determi ned wi t h r e f e r ­
ence to the c a p i t a l i s t

sys tern, a means of s o c i a l

cont r ol

of d e v i a n t behav i or i s n e c e s s a r y .
In a s o c i a l i s t system t her e would al so be c r i t e r i a
f or behav i or e v a l u a t i o n and the determi nat i on of mental
illness,

and f o r th i s reason the costs of mental

ca re coul d be consi dered s o c i a l l y neces sa r y .
tion,

hea l t h

This con t e n -

however , i gnores the r o l e p 1 ayed by the domi na nt

i n t er es ts in a capi t a 1 i st s oci et y i n the e s t a b l i shment of
behavi or norms and the t r e a t me n t of ment a 1 i l l n e s s .
the soci oeconomi c sys tern i t s e l f
causing ment a 1 i l l n e s s ,

and i f

is res ponsi b 1 e in p a r t f o r
the t r ea tment which soci e t y

provi des i gnores i mpor t ant causal

factors, it

seems r eason-

ab 1 e to co nc 1 u de t h a t not a 11 of the cos ts of men t al
are s o c i a l 1y necessar y.

If

Class goods b e n e f i t s

health

r e s u l t from

the p u b l i c p rov i s i on of men t a 1 h e a l t h care because the
2 2 1 b i d . , p.

4 78.

204
system is dominated by the medi cal
val ues of the dominant cl ass

e l i t e which enf or ces t he

in soc i e t y.

The A l l o c a t i o n of Be n e f i t s
As the pr ecedi ng di scussi on i ndi c a t e s , t h e r e is
ample reason to b e l i e v e t h a t cl ass goods b e n e f i t s
from the p u b l i c p r o v i s i o n of h e a l t h c a r e ,
heal t h s e r v i c e s .

It

is d i f f i c u l t ,

derive

i n c l u d i n g mental

however,

to be a t a l l

p r ec i se about th e r e l a t i v e p r o p o r t i ons of s pec i f i c goods
benef i ts and cl ass goods benef i ts .
Pu bl i c h e a l t h se r v i c e s are pr edomi nant l y o r i e n t e d
toward ser vi ces which are not competi t i ve wi th t he p r i vat e
he a l t h care system.

The need f o r se r v i ces such as j ob

envi ronment i n s p e c t i o n and ma t e r n a 1 and c h i l d car e f o r the
poor may be a r e s u l t of the c a p i t a l i s t system.
budget d e t a i 1 f o r

fiscal

Available

1970 show t h a t gross ex p e n di t ur e s

f or ma te rna 1 and c h i l d ca re and envi ronmen t a 1 h e a 1 th p u r ­
poses amounted to 25. 5 per cent of t o t a 1 gross expendi t ur es
of the Mi chi gan Depart ment of Publ i c H e a l t h .
da ta do not e x i s t f o r

1 oca 1

levels

23

Similar

of government.

11

is

possi bl e t h a t some p a r t of the expendi t u r e f o r envi ronmental
and ina t e r n a 1 / c h i I d ca re purposes i s s o c i a l l y nec essar y,
it

but

is al s o p o s s i b l e t h a t o t her expendi t ur es by t he va r i ous

heal t h department s are not s o c i a l l y necessar y.
23

Therefore,

St a t e of Mi chi gan, Pet al I of t he Cu r r e n t Opera­
t i ons of the Execut i ve Budnet, F i s c a l Year 1972 ( Lansi ng,
T 9 7 2 ) 7 p7 l <^ 2 7

205
an a r b i t r a r y

f i g u r e of 25 pe r c e n t i s assumed to be the

cl ass goods p r o p o r t i o n of t o t a l

benefits

from p u b l i c

hea1th s e r v i ces ; the remai ni ng 75 p e r c e n t i s a l l o c a t e d
as gener al

goods.

A s i m i l a r probl em a r i s e s wi t h ex pendi t ur es
mental

h e a l t h and h o s p i t a l s .

the e t i o l o g y of mental

f or

Wi t hout b e t t e r knowledge of

illness,

which would enabl e one

to d e r i v e es t i ma tes of the e x t e n t of system-caused i l l ­
ness , 25 per cent of spendi ng f o r these purposes is al so
ass umed to be cl ass goods benef i t s .
cent of men t a 1 h e a l t h and h o s p i t a l
cated as speci f i c goods .
whi l e admi t t e d l y

The remai ni ng 75 p e r ­
expendi t u r e is a l l o ­

These a l 1o ca t i on pr o c e d u r e s ,

i mp r e c i s e ,

account i n p a r t f o r the var i ous

i nf l ue nce s e x e r t e d by the s t r u c t u r e of cl asses

i n our

soc i e ty .
The s p e c i f i c goods benef i ts of hea1th and hospi t a 1
expendi t ur es are a 11 oca ted i n the same way as in the conventiona1 anal ysi s.

As Tab 1e 17 shows, a l l o c a t i ng 25 p e r ­

cent of the t o t a 1 b e n e f i t s a s cl ass goods ca uses the
i nci dence of t o t a l

benefits

to be both 1 ess reg res s i ve i n

the 1 ower br acket s and pr ogr essi ve i n the top br acket
(Assumptions 1 and 3 ) ,
Assumptions 2 , 4 and 5.

and i n the top two br acket s under

TABLE 17

Income
Bracket
( $000)
Under 1
1-2

2-3
3- 4
4-5
5-5
6-7
7- 8
8- 9
9- 10
10-12

12-15
15-25
Over 25
TOTALS
MONEY
AMOUNTS
($0 0 0 )

Expendi tures

S p e c i f i c Goods
Benef i t s?

t o t a l Heal t h and Hospi t al Be ne f i t s
----------------------------------------------------------------Assumption 1
Assumption 2

51 .00
15. 33
6 . 66
4. 02
2. 76
2. 39
2. 14
2. 26
2 . 26
1 .08
3. 27
3. 02
2. 76
. 25

17. 75
7 .84
4.61
3. 63
3. 17
3. 22
3. 42
3. 79
4.01
3. 90
7. 28
8. 57
12.41
16. 36

100.00

69, 615

(48.86)
( 3.34)
( 1. 0 8)
(
• 50)
(
• 29)
(
- 19)
(
-13)
(
-ID
(
- 09)
(
- 07)
(
- 05)
(
- 03)
(
-02)
S *--)
(
. 18)

100.00

238, 000

58. 27)
5. 8 5 )
2.54)
1 . 55)
1. 12)
.88)
. 73)
.61 )
. 52)
. 46)
. 40)
. 33)
. 27)
. 48)
. 61)

( 49. 16
( 3. 68
( 1 .46
(
.92
2.01 (
-71
2. 23 (
.61
2. 57 (
. 55
2. 98 (
.48
3. 33 (
.44
3.51 (
.42
7. 18 (
.39
9. 18 (
.38
17. 63 (
.39
24. 01 (
.70
100.00 (
.61

3

15.01
4. 9 4
2. 64
2. 15

902

The D i s t r i b u t i o n of Be ne f i t s From Heal t h and Hospi t al
Radi c a 1 Anal ysi s' !

TABLE 17 ( c o n t ' d . )
Income
Bracket
( $000)
Under 1
1-2

10-12

12-15
15-25
Over 25
TOTALS

As sumpt i on3
1 6. 40
6 . 39
3. 62
2. 89
2. 59
2. 72
3.0C
3. 39
3. 67
3.71
7. 23
9. 19
15.01
20. 19
100.00

( 53. 71 )
( 4.77)
( 2.00)
( 1. 2 3 )
(
-91 )
(
- 75)
(
■64)
(
-55)
(
-48)
(
- 44)
(
. 39)
(
. 35)
(
3^)
. 59)
(
. 61)

Heal t h and Hospi t al
Assumption 4
14. 94 ( 4 8 . 9 4 )
4. 68 ( 3 . 4 9 )
2. 33 ( 1 . 28)
1 .82 (
- 77)
1 .66 (
. 58)
1 .80 (
- 49)
. 44)
2. 05 (
. 37)
2.31 (
2. 54 (
. 33)
2. 74 (
. 33)
. 31)
5.61 (
8. 14 (
.31 )
16. 60 (
. 36)
. 96)
32. 78
100.00 (
. 6 T)

Be ne f i t s

3

As sumpt i on5
14. 95
4. 68
2. 33
1 .82
1 .66
1 .80
2 .C 6

2. 32
2. 56
2. 75
5. 64
8. 17
16. 65
32. 61
100.00

(48.94)
( 3.49)
( 1 -29)
(
. 78)
(
. 59)
(
. 49)
(
-44)
(
. 37)
(
. 33)
(
- 33)
(
.31 )
(
-31 )
(
. 36)
]
.96
(
. 61)

tLess than . 01.
Fi gures in parentheses are percent ages of adj ust ed broad income from
Tabl e 10; ot her f i g u r e s are percentages of the money amounts shown
„at the bottom of the t a b l e .
See t e x t f o r e x p l a na t i o n of the d i s t r i b u t i o n of s p e c i f i c goods
-benefits.
See Chapter n
f o r ex pl a na t i o n of Assumptions 1- 5.

207

2-3
3- 4
4- 5
5-6
6-7
7- 8
8- 9
9- 10

Tot al

CHAPTER X I I
A CONVENTIONAL ANALYSIS OF
GENERAL EXPENDITURES

The heading "gener al
f o l l o w i n g i t ems:
l ocal

police,

fire,

parks and r e c r e a t i o n ,

general

control,

and " a l l

These expendi t ur es
per cent of t o t a l

total

expendi t u r e s " i nc l udes the
sanitation,

financial

sewerage,

administration,

ot he r gener al

expenditures."

i

$ 1 , 1 1 8 . 2 m i l l i o n and were 23. 2

spending by Mi chi gan s t a t e and l oc al

governments i n f i s c a l

1970.

These are expendi t ur es

what ar e commonly known as p u b l i c goods,

for

and t hey ar e

aggregat ed f o r i nci dence purposes because of the nat ur e of
their benefits.
The Be n e f i t s of General
Goods Expendi t ur es
As t h e i r c l a s s i f i c a t i o n

impli es,

expendi t ur es y i e l d s

benefits

identify

as members of income groups.

recipients

f o r which i t

t h i s group of
is d i f f i c u l t

to

The

^These are the c a t e g o r i e s i n Bureau of t he Census,
Governmental Finances i n 1 9 6 9 - 7 0 , op. c i t . , p . 37.

208

209
benefits

of expendi t ur es such as gener al

ment a d m i n i s t r a t i o n )
to a l l

and f i n a n c i a l

control

a d m i n i s t r a t i o n accrue

r e si dent s of the s t a t e by v i r t u e of t h e i r

and t her e is no way to excl ude r e s i d e n t s
of these s e r v i c e s .
and f i r e ,

yield

Ot her e x p e n d i t u r e s ,

specific benefits

cr i me and f i r e , but al so gi v e r i s e

the s t a t e .

r esi dency

from the b e n e f i t s
such as f o r p o l i c e

to t hose p r o t e c t e d from
to e x t e r na 1 i t i es such

as de t e r r a nc e a nd p r e v e n t i o n which benef i t a l l
of

( gover n­

In s h o r t , the b e n e f i t s

res i dents

of expendi t ures

such as th es e accrue to everyone in th e s t a t e because
t her e is no way, by t hei r n a t u r e ,
r e si dent s

to excl ude Mi chi gan

from r e c e i v i n g b e n e f i t s .

Ne v e r t he l e s s ,

it

i s pos s i bl e

t h a t t h e r e a re t hr ee

except i ons to th i s ge n e r a l i z a t i on i n the case of sani t a t i on,
sewera ge, and l oc al

parks and recr ea t i o n .

Each o f thes e

ser vi ces could be o f f e r e d on a f e e - f o r - s e r v i ce b a s i s , which
could be used a s an excl usi on dev i c e.
the charges f or
of b e n e f i t s

the se r v i c e s would reduce t he t o t a l

available

to which charges would l i m i t
is probabl y s ma l l .

amount

(charges have a l r e a d y been s u b t r a c t e d

from a l l o c a b l e expendi t ur es

the

I n t hese i nsta nces ,

in Chapt er I V ) ,

but the e x t e n t

the consumpti on of b e n e f i t s

F u r t h e r , t her e a re e x t e r na 1i t i es from

publ i c p r o v i s i o n of these s e r v i c e s which make the

assumption of g e n e r a l i t y a p p l i c a b l e to t hese expendi t ur es
as w e l l .

210

The A l l o c a t i o n
Previous

used

in

basis

The m o s t

popular

of

previous

studies

are

and

in

t wo m e t h o d s

proportion
was

used

incidence

studies

cases

t wo

the

percent

of

to

in

methods

general

the

in

were

goods

various

income.
of

At

the

Chapter

on

a per

least

I

(note
ty

bv

of

these

expenditure

8).

In

allocating

i ncome

methods

family

one

thirteen

combined

benefits

in

allocative

allocation

each

cited

of Benefits
Studies

an d

some
50

50

percent

r\

on

a per

family
Other

i ncome

and

Allocating
that

the

that

taxes

basis.^

methods

used

disposable
benefits
benefit
pay

that

some g e n e r a l

tion

and

income,

by

the

consumption,

taxation

4

by
an d

capital
taxes.

of

taxes

is

operative,

5

a s s u me s
i.e .,

received.

Daicoff

goods

sewerage,

of

benefits

and

3

allocation

distribution

principle

for

M u s g r a ve

include

and

Ea p e n

expenditures,

provide

services

shifted

to

and
such

to

Eapen
as

a s s u me

for

sanita­

businesses,

and

that

C
these

benefits

2

Eapen
S m o l e n s k y , op.
3
op.

c i t .,

4
5
op.

c it . ,

are

consumers.

Consumer

benefits

and Eapen, o p . c i t . , p. 8 9 ; R e y n o l d s and
c i t . , p. 13; Tax F o u n d a t i o n , o p . c i t . , p.

G ille sp ie , op.
pp. 154-155.

c i t .,

Tucker,

op.

c i t .,

p.

Singer,
p . 34.

op.

c i t .,

pp.

^Musgrave and D a i c o f f ,
and Eapen, o p . c i t . , p. 89.

p.

161;

Musgrave

and

12.

Daicoff,

529.
101-102,

op. c i t .,

Musgrave,

pp.

et

1 5 4- 1 55 ;

al . ,

Eapen

211

are

allocated

tures

by

by

the

u n w i 1 1 i ng

because

to

of

the

choose

m ajority

a single

there

s e e me d

to

these

methods

listed

above.

basis

a s s u me s

that

goods

benefits.

the

of

consumption

expendi­

income.
The a u t h o r s

were

distribution

democratic

good

a 1 l o c a t i ve

studies

technique

reasons

to

select

Allocating

on

a per

fam ilies
method

previous

share

has

equally

some

in

validity

because

which

determines

budgets.

Methods

which

a 11o c a t e

by

income

does,

.

that

or

capi t a 1 income,

one's

share

in

the

assume,

of

general

process

benefits

any

family

p o litical

of

.

all

This

co mp os i t i on

".

be

of

of

the

general

as

Singer

i nfra-s tructure

of
7

the

e c o n o my

Studies

which

tribution
balance

is

to

of

the

feel

is

any

the

This

previous

functions

7

in

to

Chapter

a s s ump t i o n s

i nc ome

i ncome
and

benefi ts

.

.

family

."
dis­

attempt

to

use

11

i n c 1uded

a description

a re

im plicit

in

an d

f u n c t i on
for

McGuire
of

allocating

[ M U ( Y ) = C/ Y ^ ’ ^ ]

studies,

but

the

Aaron

results

o p . ci t . , p.

of

101.

these

and M a i t a l

i ncome w h i ch

f u n c t i on

adjust

Singer,

to

which

Aaron

u tility

reasonable

benefi t s .

other

assumptions .

procedures .

exp l i c i t

of

g e n e r a 1 goods

d i s c u s s i on

made

one's

a comb i na t i on

allocate

u t i l i ty

allocative

in

use

these
The

p r o p o r tio n a 1 to

general
has

and

McGuire

the

Tax

not

have

they

goods
been

used

used

sim ilar

Foundation

study.

212

The

central

benefits

is

ficiaries
be

the

whether

the

their

basis

for

of

position

i.e.,

can

or

that

general

goods

The

and M c G u i r e ,
to

for

q u a n t i f i c a t i ons
i nci dence

of

The

The
cative

adopt

the

a 11 o c a t e
These

in

is
of

As

very
a set

A1location

problems
for

this

method

a 1 t e r n a t i ves

the

the

probably

in

the

goods

in

.

.

these

Aaron
w illin g ­

basis

for

of

.

none
rathe r

".

[they
about

.
are]

the

expenditures."^

Benefits

di scussed
in

be

a s s u m p t i ons

Rather

proportion

i.e .,

of

surrounding

g e n e r a 1 goods

in

.

general

take

general

a 1 1 o c a t i ng

observes ,

in itia l

preceding

of

Mai t a 1 a n d

should

should

studies

amounts

benefits

of

bene­

the

c o n v i n c i ng

of

study.

As

evaluation,

DeWul f

gener a 1 governmen t

methods

resolved

that

of

circumstances,

cri teri a for

genera 1 g o o d s ,

goods

benefits

previous

equal

provide

subjective

di s t r i b u t i o n .

[formulae]

most

determined

position,

that

of

procedure.

c o n s u me

principal

other

is

spend

benefit

the

general

evaluation

objectively

persons

of

circumstances

indicates,

all

benefits.

these

objective

allocation

methods

i ncome , a r e

ness

allocation

subjective

the

that

the

that

goods,
to

in

or

discussion
the

problem

This

specification

benefits
it

s e e ms

Chapter
five

cover

11

wa y s
the

Study

cannot

of

be

preferable
which

is

discussed

incidence

a llo ­

to

to
e a r 1i e r .

spectrum,

O
Luc D e W u l f ,
In e q u a lity ? " Finance
1974),
p. 22.

" Do
and

P u b l i c Ex p e n d i t u r e s Reduce
Development, V o l. I I (September

213

with

the

poor)

per

and

fam ily

the

(pro-rich)

Maital

and

function

types

as w e l l

as

Daicoff

assumed

accrued

to

of

goods

spending

consumers

that

and

20

personal

taxpayers.^
well

most

9

while

tax

Eapen,

the
of

(pro­

progressive

general

to

fire ,

general

expenditures.

amount

Police,

fire,

to

95

sanitation

property

fam ilies

is

based

assessed

valuation

property

of

each

residential,
industrial.

percent

on

the

of

38.3

Of

the

^Musgrave
^Eapen

the

and

and

all

allocation

percent

Eapen,

op.

to

or

business

op.

of

represented

general

are

total
by

61.7

the
percent

agricultural

expenditures,

c i t . , pp.

ci t . , p.

^ M i c h i g a n Department o f
No. 9 . 1 , t a x e s , o p . c i t .

expenditures.
benefit

commercial,

Daicoff,

expen­

principally

proportions

remaining

adminis­

These

proportions

property

These

financial

general

sewerage

relative

real

group.

and

11

an d

and

of

and

police,

control,

part

the

benefit

general

ditures

are

by

which

sanitation,
other

allocated

business

expenditures

and

benefits

businesses

groups

all

used.

Musgrave

Ea p e n

between

by

businesses

goods

private

an d

also

services.

spending

Those

is

used

benefits

Ea p e n a n d

payments

that

as

tration

Sheet

of

percent

sewerage

property

as

to

general

businesses,

businesses

s i m i 1a r
and

of

of

regressive

the

Eapen

division

owners

most

an d

private

sanitation

sewerage,

the

yielding

r e f i nement,

Daicoff

Certain

of

as

incidence.

A further
Musgrave

benefits

and
20

1 5 4 - 1 55.

89.

Commer ce,

E c o n o mi c P r o f i 1 e

214
percent

is

assumed

the

benefits

are

assumed

by

to
to

benefits

previous

to

discussion

the

percent

the

be

of

an d

expenditures:

Michigan
Table
allocating
3 yield

an d

which

allocating
of

general

2 yields

the

above
that

the

by

income

general

goods

percent

of

b u s i ness

result

as

from

the

follows:

expenditures
this

amount

discussed

to

of

accrues
allocated

above;

accrues

to

consumers

by

consumption

benefits

accrues

to

the

methods

of

residents.
the

goods

results

of

expenditures.

incidence
results

which

are

these

expendi tu r e s

expendi tu re s .
function, yield
i ncome

bracket.

allocative

as

1 an d

expected, while

m ildly

regressive

for

impact

by

the

the

Assumptions
mi I d l y

five

Assumptions

patterns,

of

of

benefits

and

part

choice

of

allocated

a 11o ca ted

p r o p o rti ona1 except

$5,000

business

expendi tu re s

be

Maital

the

with

would

c o n s ump t i on

us e

of

18 s h o ws

r e g r e s s i ve

Assumption

is

percent

and a r e

which

methods

general

80

residents.

general

three

distribution

percent

48.3

summarized

fam ilies,

and

All

consumers

total

firs t

businesses,

87.9

to

procedures

of

Michigan

by
13.0

fam ilies.

out-of-state

can

percent

to

businesses

expendi t u r e s , w i t h

allocation

74.9

to

shifted

accruing
Th e

benefit

accrue
be

c o n s u m p t i on

to

distribution

4 and

5,

p r o g r e s s i ve

These

techniques

data
for

of

which
results

demonstrate
general

goods

215
benefits
of

the

s h o ws
butive

has

a significant

results.
that
to

The M a i t a l

general
low

impact

goods

i ncome

function,

may n o t

groups.

on

the
in

incidence

pattern

particular,

necessarily

be

re d is tri­

TABLE 18
The

I ncome
Bracket
($000)

1

Assumpt i on

5.
6
4
4
4
4
4
5
6

47
45
97
37
03
23
60
47
12

5 99
11
13.
17
5
1 00

64
69
92
05

(7 9
(21
(11
( 7
( 6
(
i1( 4
( 3
( 3
( 2
( 2
( 2
( 1

1

50)
C3)
77)

Assumpt i on

01 )
86 )
07)
66)
32)

1
1
1
•*
i
2
3
0
4

96)

5

63)
18)
62)

11
16
27
15
100

88)

f
CO ( 2 5^ 4 i/

of Benefits
Conventional

27
01
27
57
85
36
00
97
85
27
47
03
71
37
00

3
3
3
2
9
L.
2

2
2.
2
2
2
2
2
2

0L

2

91 )
29)
01 )
84)
77)
71 )
66)
65)
63)
61 )
59)
55)
50)
34)
54)

Fr om G e n e r a l
A n a l y s i s ' ! >2

Assumpt i on
o
L

<j

3
2
2
9
3
4

5
c

11
14
22
12
1 CC

87 (41
74 ( 1 2
12 ( 7
97 ( 5
94 ( 4
29 ( 3
79 ( 3
73 ( 3
49 ( 2
63 ( 2
56 ( 2
86 ( 2
81 ( 2
21
1
01 I 2

3

71 )
17)
39)
36 )
38)
78)
36)
16)
98)
78)
61 )
37)
06)
48
54)

Expenditures

Ass umpt i on

1
i
1
2
2
3
4

9
13
26
32
9S

18
59
75
02
26
64
13
86
58
05
05
64
93
31
99

--

4

<£ 5 7 )
1 91 )
1 77 )
1 85)
1 88)
1 88)
1 89)
1 91 )
1 94)
2 .00)
2 04)
2 17)
2 43)
3
5U
2 54)

Ass umpt i on

18
60
75
03
27
64
14
88
61
07
10

1
1
1
2
2
3
4
9
1 3 72
27 00
32 01
1 00

o
o

Under 1
1- 2
2- 3
3- 4
4- 5
r, _ 6
6- 7
7- 8
8- 9
S- 1 0
1 0- 1 2
1 2 - 15
1 5- 25
O v e r 25
TOTALS
KCNEY
AMOUNT
($000)

D istribution

(
(

(
(
(
(
(

(
(
(

(
(

(
(

(

5

2 60)
1 94)
1 79)
1 86)
1 90)
1 .89)
1 90)
1 .92)
1 96)
2 . 01 )
2 05)
2 . 19)
2 44)
3 .87)
2 .54)

982,898

Figures

in p ar ent he se s are p er cen tag es o f a d j u s t e d broad
a r e p e r c e n t a g e s o f t h e money a m o u n t s hown a t t h e
See C h a p t e r I I
f o r e x p la n a tio n of Assumptions 1-5.

2f i g u r e s

i ncome
bottom

f r o m T a b l e 6;
of the t a b le .

other

CHAPTER X I I I
GENERAL EXPENDITURES:

In the convent i onal

A RADICAL ANALYSIS

anal ys i s ,

gener al

are assumed to pr ovi de i n c l u s i v e b e n e f i t s
of the p o p u l a t i o n .
diture

With few e x c e p t i o n s ,

i nci dence s t udi e s accept t h i s

generality.

The r a d i c a l

analysis,

to a l l

activities.

assumpti on of

on the ot he r hand,

general

of the r o l e of the S t a t e and i t s

of s o c i a l l y

ex pendi t ur es

cl ass goods.

allocation

to c a n i t a l i s t s

As has been the case in t he r a d i c a l

is d i f f i c u l t

procedures

as

analysis

the cl ass goods p r o p o r t i o n of
to det er mi ne,

used in t hi s

expenditures.

21 7

al t hough the

chapt er ar e pr obabl y no

worse than those used in the convent i onal
gener al

analysis,

to det er mi ne what p r o p o r t i o n of

in some pr evi ous c h a p t e r s ,
benefits

general

necessary costs i s a p p l i e d to

these ex pendi t ur es shoul d be a l l o c a t e d

total

usi ng a d i f f e r ­

Wi t hi n the co n t e x t of the r a d i c a l

the c r i t e r i o n

segments

pr evi ous expen­

examines the i nc i d e nc e of these ex pendi t ur es
ent i n t e r p r e t a t i o n

expendi t ur es

a n a l y s i s of

218
The Be n e f i t s and B e n e f i t Re c i p i e n t s
o f General Spending
In c o n t r a s t to the convent i ona 1 a n a l y s i s ,
radical

a n a l y s i s of gener al

a re s p e c i f i c ,

the

spendi ng assumes t h a t t her e

i dent i f i abl e r e ci pi ents of p a r t of the

benef i ts of these expendi t u r e s .

The very na t u r e o f the

Sta te i n a capi t a l i st s oci oeconomi c sys tem pr ecl udes t he
convent i onal

b e n e f i t assumpt i on.

In the r a d i c a l

i nter-

pr et a t i on , the S t a t e i s seen a s a means f o r perpet ua t i ng
the cl ass s t r u c t u r e of c a p i t a l i s m ,
of one c l a s s - - c a p i t a l i s t s - - o v e r
In ot her wor ds, the n e o c l a s s i c a l

ot her cl asses i n s o c i e t y .
ass umpti on t h a t the Sta te

i s a me di a t or of cl ass di f f e r e n c e s
Therefore, i t

which i s t he dominance

i s e x p l i ci t l y

rejected.

i s necessary to exami ne genera 1 expendi t ur es

in a di f f e r e n t c o n t e x t to det ermi ne which of the expendi ­
t ur e ac t i ons of the S t a t e a re undert aken to pr eser ve the
s t r u c t u r e of capi t a 1 i sm.
The most obvi ous gener al

ex pe ndi t ur e whi ch i nc1udes

e 1ements of cl ass bi as i s p o l i c e expendi t ur e .
be l i t t l e

There can

doubt t h a t the law enf orcement and c r i mi nal

j u s t i c e systems di s p1ay a cons i s t e n t cl ass b i a s .

Thi s bi as

f avors mi ddl e- and upper - i ncome g roups and res u 1 ts in a t wocl ass sys tem of j u s t i c e . ^
are the r e s u l t s

F u r t h e r , the causes of much c r i me

of the worki ng of the c a p i t a l i s t

sys t em.

^See t he di scussi on by Gordon, op. c i t . , pp. 276280, and Rona1d Go l d f a r b , " Pr i s o n :
The Na t i o n a l Poorhouse, "
in Gordon, op. c i t . , pp. 3 1 0- 3 13 .

219
As Gordon descr i bes the r a d i c a l
the cl ass bi as of p o l i c e ex pendi t ur es

analysis

of cr i me,

becomes more c l e a r .

One el ement of cl a ss bi as i s the s e l e c t i v e enf or cement of
laws w i t h i n a s t a t u t o r y sys tem whi ch i s nomi na 1 l y genera 1 .
Thus, many o f the laws a g a i n s t a c t i ons commi t t e d by the
poor because of t h e i r

l ack of economic a l t e r n a t i v e s

(numbers runni ng and p r o s t i t u t i o n ,

f o r exampl e) ar e more

h e a v i l y enf or ced and puni shed than laws a g a i n s t whi t e
c o l l a r or c o r p o r a t e cr i me.
The s e l e c t i v e enf or cement of laws on a cl ass basi s
a r i se s

i n p a r t from the nat ur e of the a c t i o n s which ar e

made i l l e g a l .

Much of ghet t o cr i me ,

or gani z e d cri me and

corpora te c r i me is a response to t he economi c c i rc urns t ances
of the p e r p e t r a t o r s .
alternative
security,
illegal

2

Crime i n the ghe t t o i s p a r t i a l l y

an

to the l ack of l e g a l means of g a i n i n g economic

w h i 1 e o r gani z e d cri me pr ovi des a market f o r

services

f o r which deman d e x i s t s ,

and corpora te

cri me is o f t e n engendered by the need to p r o t e c t and
3
enhance c o r p o r a t e p r o f i t .
Both the nat ur e o f i l l e g a l

a c t i v i t y and t he s e l e c ­

t i v e enf orcement of laws a g a i n s t c e r t a i n types of cri me
act

to r e i n f o r c e the s t r u c t u r e of c a p i t a l i s m .

is more o f t e n
puni shed,
2

Si nce i t

the poor than the weal t hy whose cri mes ar e

c r i mi n a l
Gordon,

3 1b i d . ,

c o n v i c t i o n s can be a means of l i m i t i n g

op.
pp.

c i t .,

pp.

276- 277.

276- 277.

220

opportunities

f o r t he lower c l a s s e s . 4

Finally,

t her e i s a

predomi nant p a t t e r n of enf orcement a g a i n s t i n d i v i d u a l s
r a t h e r than i n s t i t u t i o n s ,

which al so r e i n f o r c e s

t he s t r u c ­

t ur e of the system.
S a n i t a t i o n and sewerage ex p e n di t ur e s al so cont ai n
el ements of cl ass bi as because they enhance t he p r o f i t ­
ability

of p r i v a t e

i nves tments whi ch wou 1 d ot herwi se be

less p r o f i t a b l e or not undert aken a t a l l .

These expendi ­

t ures are what 0 ' Connor c a l l s compl ementary and di scr e5
t i o n a r y i n v e s t me n t s .
Whi l e i t i s t r u e t h a t t hese types
of expendi t ur es would be necessary in a s o c i a l i s t economy,
it

is u n l i k e l y

that

the b e n e f i t s

s h i f t e d to f a m i l i e s ,
and i t

of t hese e x p endi t ur es are

as the convent i ona 1 anal ys i s assumes,

is al so u n l i k e l y

t h a t more s o c i a l l y

r e s p o ns i b l e

i ndus t r y would r e q u i r e the same degree of comp 1 ementary and
d i s e r e t i o n a r y subsi di es of pr o du c t i on .
el ement of cl ass goods b e n e f i t

Thus,

t h e r e i s an

i n these ex pendi t ur es as

well.
The remai ni ng gener al
tially

goods ex pendi t ur es ar e essen­

f o r the suppor t of government o p e r a t i o n s ,

t e c t i o n and mi scel l aneous

services.

a r i s e from these expendi t ur es
dominant cl ass

f i r e pr o­

Cl ass goods benef i ts

to the e x t e n t t h a t the

uses the S t a t e to pr eser ve t he s t r u c t u r e of

the system.
4 I b i d . , p.
5
O' Con no r ,

2 78.
op . c i t . , p . 102.

221

The A l l o c a t i o n of Be n e f i t s
The precedi ng di scussi on does not l ead to e mp i r i c a l
est i mat es of cl ass goods b e n e f i t s .

Crime would c e r t a i n l y

e x i s t in a s o c i a l i s t economy, al t hough the nat ur e and
causes o f c r i me would be di f f e r e n t .
in a radi c a 1 a n a l y s i s ,
and person because i t

goes beyond p r o t e c t i o n of p r o pe r t y
is p a r t of a j us t i ce sys tem which

works to pr eser ve the i n s t i t u t i o n a l
capitalism.

P o l i c e p r o t e c t i on,

and cl ass s t r u c t u r e of

As an ar bi t r a ry es t i mate,

38. 3 per cent of

p o l i c e expendi t ures is assumed to benef i t capi t a 1 i s t s .
Thi s is

the same p r o por t i on ass umed to benef i t bus i ness in

the convent i onal

analysis,

but the radi cal

ass urnption is

t h a t these b e n e f i t s a re not s h i f t e d to fami l i e s .
cedure w i l l

This p r o ­

account in p a r t f o r the cl ass bias o f law

enf orcement and i ts sys tem-s us ta i ni ng qua 1 i t i es .
I n the case of s a n i t a t i o n and s ewerage e x p e n d i t u r e s ,
the same procedure is used to a l l o c a t e benef i ts between
capi t a 1 i s ts and f a m i 1 i e s :
p r o p o r t i o n as the real
r eal

p r ope r t y of busi ness i s of t o t a l

prope r t y in Mi chi gan,

benefits

cl ass goods accrue i n t he same

a nd i t

i s ass umed tha t the

are not shi f t e d to consumers.

Thi s procedure

accounts f o r the p r o f i t - enhanci ng and soci a l l y unnecessary
aspects of spending f o r these pur poses.
The b e n e f i t s of the rema i n i ng genera 1 expendi t ur es
are di v i de d between those which accrue to f a m i 1 i es and
those which accrue to capi t a 1i s t s .

Thi s a l l o c a t i o n

is

222

made by the same r a t i o as the b e n e f i t s of s p e c i f i c expen­
ditures

are di v i de d between these two groups

cent accrues to c a p i t a l i s t s ) .
these gener al
essentially

goods b e n e f i t s

The r a t i o n a l e f o r a l l o c a t i n g
in t hi s

f ashi on is t h a t these

i n f r a - s t r u c t u r e ex pendi t ur es are i nc ur r e d to

support the governmental
benefits

(44.49 per ­

s t r u c t u r e which pr ovi des the

from the s p e c i f i c e x p e n d i t u r e s .

The convent i onal

assumption of o u t - o f - s t a t e s h i f t i n g

of busi ness b e n e f i t s

is r e t a i n e d i n the r a d i c a l

f o r s h i f t i n g cl ass

goods b e n e f i t s ,

i.e.,

analysis

51. 7 per cent accrues to Mi chi gan

res i den ts .
The r e s u l t of t h i s a l l o c a t i o n
80. 5 per cent of gener al
residents.

goods spending accrues to Mi chi gan

Thi s p r o p o r t i o n i s

7. 4 per cent age poi nt s

than the p r o po r t i on which r e s u l t s
analysis.

Agai n,

f o r purposes of compari son,

general

i n both ana l y se s.

goods b e n e f i t s

benefits

are

a l l o c a t i o n of

can be summarized as f o l l o w s :
benefits

accrues to

as cl ass goods and 51. 7 per cent

of c a p i t a l i s t
residents;

the r a d i c a l

res i dent b e n e f i t s

The r a d i c a l

40. 32 per cent of gener al
capitalists

l ess

from the convent i onal

pr opor t i on i s a d j us t e d so t h a t t o t a l
identical

procedure is t h a t

benefits

therefore,

accrues

accrues

to Mi chi gan

20. 85 per c ent of general

to Mi chi gan c a p i t a l i s t s ;

59. 58 per cent of gener al

benefits

accrues to

Mi chi gan f a m i l i e s and i s a l l o c a t e d by each
of the f our methods di scussed above; and

223
80 . 53 pe r c e n t of gener al

goods b e n e f i t s accrues

to Mi chi gan r e s i dents .

Thi s p r o p o r t i o n is

a dj us t e d to 8 7 . 9 per cent s f o r c o m p a r a b i l i t y
wi t h

t he conve nt i ona l

analysis,

by r a i s i n g

the r e s i d e n t capi t a l i st p r o p o r t i o n to 28. 22
percent.
The p r i n c i p a l
convent i onal

differences

allocations

between the r a d i c a l

of gener al

and

goods b e n e f i t s ar e

t h a t consumption expendi t ur es ar e not used to a l 1 ocate
p a r t of t he b e n e f i t s

under Assumpti ons 1 - 3 ,

and t h a t the

rad i c a 1 d i s t r i b u t i o n o f adj usted broad i ncome, which is
used in t he Ma i t a 1 u t i l i t y

f u n c t i on, i s s i i g h t l y d i f f e r e n t .

As Tabl e 19 shows, the r e s u l t s
general

of t he r a d i c a l

goods b e n e f i t s ar e somewha t d i f f e r e n t

of the convent i onal

analysis .

a n a l y s i s of
than those

Assumptions 1 and 3 ar e

r e g r e s s i v e up to the top b r a c k e t , and Assumptions 2, 4 and
5 yield

variable patterns:

progress i ve up to $5 , 000,

regress i ve between $6, 000 and $ 9 , 0 0 0 , and progress i ve
above $1 0 , 0 0 0 .

In the 1 a t t e r

cases,

t he shape of the d i s ­

t r i b u t i o n of capi t a l i st income (see Tabl e 8 ) causes t hese
discontinuities
are s i m i l a r

i n the i nc i dence p a t t e r n s .

to the conve nt i ona l

The r e s u l t s

a n a l y s i s , however, i n t h a t

Ass umpti on 1 is t he mos t r egr ess i ve and Ass umpti on 4 the
most p r o g r e s s i v e .

►

TABLE 19
he D i s t r i b u t i o n of Bene f i t s

Frcr, General

Expendi t ures - -

Radi cal

1 °
Anal ysi s * u

Income
Bracket
( $0 0 0 )

Under 1
1!
-L
L“ 3
yj
4- 5
-6
ry

-7
•n
l -8
_0
*j r

-10
-12

1 2 - 15
15 -25
Cve r 25
TOTALS
MONEY
AMOUNT
(sooo)

1

As s i; r p t i or 1
4 .20
r
.97
yj • 01
3 .59
.42
<.05
o.
u•nL
4 . 53
4 .06
4 .04
9 .17
1 1 .07
16 •41
21 . 20

(5 7. 6 6 )
(1 rU. o u )
r<J»91 )
( C
( ^ * 31 )
( I 98)
oq)
(
{V 3. 53)
( Jo . 0 1 )
( 0 € 6 3'
(
2 . 38 )
( nC . 06)
( 1 . 76)
. 48)
( 1
r)
L
. 58)
i—. 53)

100.00 (

Ass umpt i on rL~i
14 (
66 /\
cc (
1 3o (
11 7 0 If
O 1i 7
/ (
2 . 77 (
3. 3 3 /1
35 (
4 27 (
9. 02 \/
1 2 . 91 (\
24. 1 e (
32. 6 5
1 CC

1 •82 )
£ ■0 2 )

3- 25)

2 . h O)

n . 48)
? 37)
2 . 43)
^l . 2 1 )
d
2 . 08)
2 . 10)
S
'
03)
£
co • 05)
18)
95)
53

oV !
(3
2- )

As s umpt i e r

3

Assumpt i on 4

n
c_. 20
2 . P2
. 45
iL . 4 9
o
£. . 5 6
n . or•-•
£
—
. r0J. O
<
4/
U. 93
4 . 36

(29. 7 5)
( 3. 67)
r ^9 /\
( 5. w
( 4 . 38)
( 3. 7 3)
( 3. 17)
( 2 . 98)
( 2 . 61 )
( 2 . 35)
£ . 5 n
(
2 . 24)
g , 10
0 5)
(
i 2 . 0 0 ( 1 • 31 )
2 0 . il 0
1 • 83
26. 97
3. 26_)
10 0 .
(
o b 3)

(
(

or 2

)

. 04
. 27
. 52
.89
1 ! 18
} .53
£_. 00
O. 34
u
2 .69

(
(
(
(
(
(
(
(

•*»
J

. 12 (
£ .69
(
1 C.44 (
22 .63
4 5 .67
T

Tec.01

(
(

. 50)
. 84)
1. 20)
1. 5 6)
1. 7 1)
1. 6 7)
1 . 75)
1. 5 5)
1. 45)
1 . 54)
1.51)
1 . 66)
2. 0 4)
5. 53)
2. 537

Assumpt i c n 5
04
26
53
#89
1 . IS
1 . 53
2 . 00
2 . 35
2 . 70
3. 14
6 . 74
1 0 . 49
2 2 . 70
45. 42
99. 99

(
(
(
(
(
(
(
(
(

(
(
(
(

(
(

982 , 898

Fi gures in parentheses are percent ages of adj ust ed broad income from abl e 1 0 ;
ot her f i gures are percent ages of the money amount shown at the bottom of the
, tabl e .
See Chapt er 11 f o r e x pl a na t i on of Assumptions 1- 5.

. 52)
. 86)
I • 21 )
1 . 57)
1 . 72)
1. 68)
1 . 76)
] . 56)
i . 46)
i . 54)
i . 52)
i . 67)
2 . 05)
5 .49
n
L . 53)

ro

tV)

CHAPTER XI V
A SUMMARY OF THE RESULTS AND A CONCLUSION

Thi s cha pt e r cont ai ns
v e n t i o na l

and r a d i c a l

the r e s u l t s of both the con­

anal yses

in or der to f a c i l i t a t e

comparisons between the i nc i de nc e e s t i mat e s which r e s u l t
from the d i f f e r e n t mode 1s .

The per cent age d i s t r i b u t i o n

and the i nci dence of expendi t u r e benef i ts whi ch der i ve
from convent i onal

assumpti ons are shown i n Tabl e 20,

while

Tabl e 21 shows the i nci dence and per cent age di s t r i but i on of
t o t a 1 benefits

under r adi c a 1 ass urnptions.

Tabl e 22 i s a

t a b u l a r r epr esent a t i on o f the Lorenz curves of t he var i ous
income d i s t r i b u t i o n s

and Tabl e 23 i s a l i s t

of t he pe r c e n­

tages s e r i es used in the process of a 1 1 o c a t i ng t he var i ous
expenditures.
Di scussi on of t he Resul t s
As Tabl e 20,
under convent i onal

column 1 shows, s p e c i f i c goods be n e f i t s ,

assumpti ons, are di s t r i buted almos t

e q u a l l y among the i ncome br ac ke t s below $ 1 0 , 0 0 0 .
r e l a t i vel y 1 arge p r o po r t i on s

accr ui ng

The

to the i ncome br acket s

between $1 0, 0 0 0 and $2 5, 000 r e s u l t p r i m a r i l y from the

225

TABLE 20
The D i s t r i b u t i o n and I nci dence of Expendi t ures Under Convent i onal

Income
Bracket
( $000)
Under 1
1-2

10-12

12-15
1 5-25
Over 25
TOTALS
MONEY
AMOUNTS
( $000)

4. 18
. 12
5. 22
6 . 52
6 . 48
6 . 18
5. 97
6 24
6 49
6 26
10 32
11 36
13 13
5 53

(1 43 47 )
( 47 06)
( 29 2 2 )
( 27 77 )
( 22 82)
( 16 74)
( 12 50)
( 9 85)
( 8 30)
( 7 31 )
( 5 50)
( 4 27)
( 2 80)
( 1 58)
1 0 0 00 (
5 . 99)
6

2,320,013

2
Tot a l Expendi t ures
-----------------------------------------------------------------------------------------Assumption 1
Assumption 2
Assumption 3

5. 01
6 47
5. 22
5 56
5 36
5. 28
5 34
5 90
6 32
6 . 13
10 91
12 35
1 5 09
5 06

(332
( 96
( 56.
( 45
( 36.
( 27
( 21
( 17
( 15
( 13.
( 11
( 8
( 6
( 2
1 00 00 ( 11
4,483,468

50)
14)
38)
80)
45)
69)
61 )
98)
64)
82)
23)
98)
22)
80)
57)

2 . 27
3 59
3 26
4 09
4 21
4 29
4 50
5 10
5. 65
5 75
10 81
13 59
20 26
12 62
99 99

(150 36)
( 53. 40.)
( 35 27)
( 33 64)
( 28 64)
( 22 50)
( 18 2 1 )
( 15 55)
( 13 99)
( 12 . 96)
( 11 14)
( 9 87)
( 8 . 35)
( 6 97)
( 11 . 57)

3.
5.
4
4
4
4
4.
5
5
5
10
12

64
03
24
82
78
79
92
50
99
94
86

97

17 68
8 84
1 00

00

(241 43)
( 74 77)
( 45 82)
( 39 72)
( 32 54)
( 25 09)
( 19 91)
( 16 . 76)
( 14 .81 )
( 13 39)
( 11 . 18)
( 9 43)
( 7 . 29)
( 4 .88
( 11 . 57)

226

2-3
3-4
4-5
5-6
6-7
7- 8
8- 9
9- 10

Specific
Expendi t ures

Assumptions^

TABLE 20 ( c o n t ' d . )
Total Expenditures
------------------------------------------------------------------------Assumption4
A s s u m p t i on 5

Under 1

2. 19
3 .30
2 . 92
3. 74
3 .84
3. 85
3. 98
4. 44
4 .89
5. 02
9. 40

1-2

2-3
3-4
4-5
5-6
6-7
7-8
8- 9
9-10
10-12

12-15
1 5-25
O v e r 25
TOTALS
MONEY
AMOUNTS
($000)

12.21

19.91
20. 30
99.99

(145.43)
( 49.10)
( 31 .61 )
( 30.77)
( 26.13)
( 20 . 19 )
( 16 . 08 )
( 13. 53)
( 12.11 )
( 1 1 .33 )
( 9.68)
( 8.87)
( 8.21)
( 11 .21 )
( 1 1 .57 )

2. 19 ( 145. 52)
3.31 ( 49 . 1 7 )
2. 93 ( 31 . 65)
3. 74 ( 30 . 8 1 )
3 . 8 4 ( 26 . 16 )
3. 86 ( 2 0 . 2 2 )
3. 98 ( 16. 11)
4. 45 ( 13. 56)
4.91 ( 12. 15)
5. 03 ( 11 . 35 )
9. 42 ( 9 . 7 0 )
12. 25 ( 8 . 9 1 )
19. 94 ( 8 . 2 2 )
20. 13 ( 1 1 . 1 1 )
99. 98 ( 11 . 57

4,483,468

^ F i g u r e s i n p a r e n t h e s e s are
a d j us t e d b r o a d i n c o m e f r o m
^For the
Chapter
Source:

description

of

percentages
T a b l e 6.

Assumptions

1- 5,

of
see

II.
( a b l e 5 , an d t h e
s e n t e d in T a b l e s

money

12,

accounts

13,

15,

repre-

16 and 18

111

I ncome
Bracket
(S000)

228
d i s t r i b u t i o n of educat i on and highway ex p e n di t ur e s .
distributions

of t o t a l

e x p endi t ur es under the f i r s t

assumptions r e f l e c t s i m i l a r

patterns

r e gr e s s i v e
t ures

as s hown i n Tabl e 20,

(pro-poor)

under the f i r s t

These r e s u l t s

is c o n s i s t e n t l y
expendi ­

goods assumpti ons.

are s i m i l a r to those of the ot her r ecent

ex pendi t ur e i nci dence s t u d i e s .
Musgrave,

under convent i onal

f o r s p e c i f i c goods and t o t a l
t hr ee gener al

t hr ee

among income b r a c k e t s .

The i nci dence of expendi t ur es
assumpti ons,

The

et a 1 .,

3

Ross,

1

Eapen and Eapen,

and Reynolds and Smolensky

4

2

have found

t h a t s t a t e and l ocal

ex pendi t ur es are c o n s i s t e n t l y r e g r e s ­

si ve up to the l e v e l

of the hi ghe st income br ac ke t used in

t hi s st udy,

under a broad range of assumpti ons s i m i l a r to

those used i n t h i s st udy.
the r e s u l t s

Thus,

of the convent i onal

c u l t to i magi ne d i f f e r e n t ,

t her e are no s u r p r i s e s
a n a l y s i s and i t

is d i f f i ­

r easonabl e assumptions about

s p e c i f i c expendi t ur es which would make the d i s t r i b u t i o n
benefi ts progressive,
It

or even s i g n i f i c a n t l y

is i mpor t ant

in

of

l ess r e g r e s s i v e .

to p o i n t out t h a t the r e gr es si ve

p a t t e r n of i nci dence occurs even though upper-i ncome groups
r ece i ve l a r ge amounts of b e n e f i t s .
groups,

which r e c e i v e 48. 61
^Ross,
2

per cent of broad income,

Ok 1ahoma, op. c i t . ,

Eapen and Eapen,

3
Musgrave,

et a l .,

The two top income

op. c i t . ,

pp.
p.

op. c i t . , p.

^ Reynol ds and S mo l e n s k y ,

(1),

al so

89- 91.
107.
46.
op. c i t .,

p.

18.

229
r e c e i v e 18. 65 p e r c e n t of s p e c i f i c

goods b e n e f i t s

20. 15 per cent and 32. 88 per cent of a l l
depending on which of the f i r s t
to a l l o c a t e gener al
income groups,
benefits

goods assumpti ons which use the

function y i e l d

ex pendi t ur es

i nci dence est i mat es
goods,

the r e s u l t s

results

i n which t he i nci dence

is progressi ve,

however, y i e l d

than the f i r s t

less r e gr e s s i v e

t hr ee assumptions about

al t hough t her e i s not much d i f f e r e n c e between

of Assumptions 4 and 5.

As Tabl e 21 i n d i c a t e s ,

the r e s u l t s

an a l y s i s are s i m i l a r to the convent i onal
total

of t he r a d i c a l

results

in t h a t

expendi t ur es are r e g r e s s i v e up to the $25, 000 b r a c k e t .

The top income b r a c k e t ,

however,

l a r g e r p r o po r t i on of b e n e f i t s ,
stop a t t h a t b r a c k e t .
in the top b r a c k e t
(42.38 percent)

As expect ed,

analysis.

causi ng the r e g r e s s i v i t y

The reason f o r t hi s

of t o t a l

benefits

largely

the r a d i c a l

regressivity

r e ce i ves a cons i de r a bl y

is the a l l o c a t i o n

which are d i s t r i b u t e d

less

and the i nci dence

is r e g r e s s i v e up to the top b r a c k e t .

These two assumpt i ons,

general

i s p r e c i s e l y these

s e c t o r spendi ng.

of genera 1 ex pendi t ur es
of t o t a l

It

however, which ar e l e a s t i n need of the

of p u b l i c

utility

ex pendi t ur e b e n e f i t s ,

t hr ee assumptions is used

goods b e n e f i t s .

The two general
Ma i t a l

and between

to

discontinuity

of a l a r ge p r o p o r t i o n

as cl ass goods b e n e f i t s

to the hi ghest income b r a c k e t .

assumpti ons r e s u l t in s i g n i f i c a n t l y

of t o t a l

expendi t ur es

than the convent i onal

TABLE 21
The Distribution and Incidence of Expenditures Under Radical Assumptions'*
Income
Bracket
($000)
Under 1
1- 2

10- 12

12-15
15-25
Over 25
TOTALS
MONEY
AMOUNTS
($0 0 0 )

4.10
6.27
5.38
6.75
6.64
6.23
5.94
6.21

6.44
6.15
10.08
11. 22

12.65
6.93
99.99

( 101.89)
( 35.51)
( 22.57)
( 21.86)
17.79)
( 12.98)
( 9.59)
( 7.59)
( 6.39)
( 5.57)
( 4.17)
( 3.28)
2. 10)
1.32)
( 4.64)

1,807,033

Class Goods
Expenditures
.02

.31
.73
1.27
1.65
2.03
2.53
2.33
2. 12

2.46
4.36
6.62
16.03
57.54
100. 00

1 ,900,208

.52)
1.85)
3.22)
4.32)
4.65)
4.44)
4.29)
2.99)
2 . 21)
2.34)
1.90)
2.04)
2.80)
13.46)
4.88)

2.75
3.90
3.41
4.07
4.11
4.14
4.29
4.46
4.56
4.56
7.89
9.61
14.76
27.50
100.01

4,483,468

169.38)
54.79)
35.54)
32.70)
27.33)
21.36)
17.17)
13.50)
11.23)
10.23)
8 . 10)
6.97)
6.07)
15.18)
11.52)

1.69
2.80
2.67
3.51
3.67
3.76
3.97
4.15
4.30
4.41
7.85
10.08
16.74
30.39
99.99

(104.44)
( 39.35)
( 27.93)
( 28.18)
( 24.43)
( 19.41)
( 15.88)
( 12.57)
( 10.59)
( 9.90)
( 8.06)
( 7.31)
( 6.89)
( 16.77)
( 11.52)

230

2-3
3-4
4-5
5-6
6-7
7-8
8-9
9-10

Specific
Expenditures

2
Total Expenditures
---------------------------------------------Assumption 1
Assumption 2

TABLE 21 ( cont ' d.)
Income
Bracket
($0 0 0 )

Total Expenditures
----------------------------------------------------Assumption 4
Assumption 3

Under 1

2 . 22

1- 2

3.35
3.04
3.79
3.89
3.95
4.13
4.30
4.43
4.48
7.87
9.84
15.75
28.95
99.99

2-3
3-4
4-5
5-6
6-7
7-8
8-9
9-10
10- 12

12-15
15-25
Over 25
TOTALS
MONEY
AMOUNT
($0 0 0 )

(136.91)
( 47.07)
( 31.67)
( 30.44)
( 25.88)
( 20.39)
( 16.53)
( 13.03)
( 10.91)
( 10.07)
( 8.08)
( 7.14)
( 6.48)
( 15.98)
( 11.52)

1.67
2.70
2.55
3.38
3.54
3.60
3.77
3.90
4.00
4.12
7.26
9.45
16.35
33.71

(102.89)
( 37.98)
( 26.56)
( 27.17)
( 23.54)
( 18.57)
( 15.10)
( 11.81)
( 9.86)
( 9.24)
( 7.45)
( 6.85)
( 6.73)
( 18.61)
100. 00 ( 11.52)

Assumption 5
1.67
2.70
2.55
3.38
3.54
3.60
3.77
3.90
4.01
4.12
7.27
9.46
16.37
33.65
99.99

(102.92)
( 38.00)
( 26.57)
( 27.18)
( 23.54)
( 18.58)
( 15.10)
( 11.81)
( 9.87)
( 9.25)
( 7.46)
( 6 .86)
( 6.74)
( 18.57)
( 11.52)

4,483,468

Figures in parentheses are percentages of adjusted broad
gincome from Table 10.
For the description of Assumptions 1-5, see Chapter I I .
Source: Tables 8 and 9, and the money amounts represented
in Tables 14, 15, 17 and 19.

232
Agai n,

i n terms of the abs ol ut e amounts of b e n e f i t s

accr ui ng to each i ncome b r a c k e t ,

t he rad i c a 1 a n a l y s i s

y i e l d s some i n t e r e s t i n g compari sons.

The top two income

br acket s r ecei ve 18. 58 per cent of speci f i c goods benef i ts ,
73. 57 per cent of cl ass goods b e n e f i t s and between 42. 26
per cent and 47 . 1 3 per cent of t o t a 1 b e n e f i t s ,
the choi ce among the f i r s t

dependi ng on

t hr ee assumpti ons .

two income b r a c k e t s , on the o t he r hand,
per cent of s p e c i f i c goods benef i ts ,

The 1owes t

r e c e i v e 10. 37

. 33 pe r c e n t of cl ass

goods benef i ts and between 4. 49 per cent and 6 . 6 5 per cent
of t o t a l

expenditure b e n e f i t s .

Assumpti ons 4 and 5 y i e l d

l ess r egr essi ve i nci dence p a t t e r ns
the hi ghest

and l a r g e r amounts to

income br acket than the f i r s t

The d e f i n i t i o n

of Y i n the Ma i t a l

adj ust ed broad i ncome ( r a d i c a l ) ,

t hr ee ass umpti ons.

function

i s the surn of

s p e c i f i c goods benef i t s ,

and cl ass goods b e n e f i t s minus taxes pai d in each income
br acket .
With the except i on of Assumpti ons 4 and 5,

the

convent i onal

analysis yi elds

cons i s t e n t l y

r e g r e s s i v e p a t t e r n of p u b l i c e x pendi t ur e

i nc i de nc e.

The Ma i t a l

es t i mates which descr i be a

assumptions y i e l d

i nci dence p a t t e r n s

which coul d be descr i bed as being both p r o- poor and p r o ­
rich.

S i m i 1a r d e s c r i p t i o n s

ca 1 a n a l y s i s ,

i.e.,

could be a p p l i e d to the r a d i -

the r e s u l t s show r edi s t r i but i on to

both low- and hi gh- i ncome groups,
1owes t i n come br acket s .

wh i l e f a v o r i ng the

However, DeWulf poi nt s out t h a t

w h i 1 e the i nc i de nc e pa t t e r n may i mpl y a n a c t ua l

TABLE 22
Cumulative Shares of Income for Various Income Distributions

Income
Bracket
($0 0 0 )
Under 1
1-2

10- 12

12-15
15-25
Over 25

6.27
13.44
18.85
23.53
27.78
32.19
36.92
42.49
48.65
54.62
66.07
79.25
95.84
100. 00

GINI COEFFICIENT

(2 )
Money
Income

(3)
Broad
Income

(4)
Adjusted Broad
Income-Conventional

(5)
Adjusted Broad
Income-Radical

(7)
Total
Income'
Radica
.40
1.48
2.79
4.47
6.43
8.84
11.85
15.71
20.36
25.42
36.30
51.56
78.29

2.50
4.05
5.88
8.19
11.13
15.15
20.16
25.62
37.68
54.67
84.22
99.99

1.13
2.33
3.84
5.65
7.93
10.83
14.64
19.32
24.44
35.61
51.39
73.20

2. 02

1.01
2. 12

3.42
5.12
7.33
10.19
13.99
18.67
23.80
35.04
50.96
79.04

3.55
5.28
7.51
10.39
14.19
18.87
24.00
35.23
51.12
79.12

.53
1.75
3.15
4.91
6.93
9.41
12.49
16.46
21.27
26.49
37.69
53.31
80.30

100 . 00

100. 00

100. 00

100. 00

100. 00

.4092

.4395

.4477

.4450

.4106

.4306

.21
1. 22

.21

.17
.95

.19

(6 )
Total
Income-Conventional

233

2-3
3-4
4-5
5-5
6-7
7-8
8-9
9-10

(1)
Cumulative
Distribution
of Families

TABLE 22 ( c o n t 1d. )

Income
Bracket
($0 0 0 )
Under 1
1-2

GIN I COEFFICIENT

. 38
1 .42
2.68

4. 33
6. 25
8 . 63
11 .61
15. 47
20. 17
25. 29
2 6 . 34
51 . 8 8
79. 11
100.00

. 4296

( 9)
Tot al I ncome-Radi cal
.34
1 . 35
2.61
4. 25
6. 17
8 . 54
11.51
15. 32
19. 93
24. 96
3 5. 78
51 .00
7 7 .80
1 0 0 . CO
. 4378

234

2-3
3-4
4- 5
5-6
6-7
7- 8
8-9
9- 10
10-12
12-15
1 5-25
Over 25

(S)
Tot al I ncome- Convent i onal

TABLE 22 ( c o n t ' d . )
Notes:

Column
C o l umn
Column
Column
Column
Column

( 1)
(2)
( 3)
(4)
( 5)
( 6)

Co 1 1!rnn (7)
Column

(£)

Co 1umn (9)

Tab l e 1.
Tab l e 1.
Tabl e 3.
Ta b l e 5.
Tabl e 10 «
Tab l e 6 end t he money amounts
i n Tabl e 2 0 , Assumpt i on 3 .
Tabl e 1C and t he money amounts
i n Tabl e 21 , As sumpt i on 3 .
Tabl e 6 and t he money amounts
i n Tabl e 2C, Assumpt i on 4 .
Tabl e 10 and t he money amounts
i r Tabl e 21 3 Assumpt i on 4.

r e p r e s e n t e d by pe r c en t age s
represented
represented

by pe r c e n t a g e s
by p e r c e n t a g e s

r e p r e s e n t e d by pe r c e n t a g e s
235

236

r e d i s t r i b u t i o n of i ncomes, " [ o ] n e ought , p e r h a ps , to con­
c e n t r a t e on the abs ol ut e amounts of b e n e f i t s
to the vari ous subgroups of the p o p u l a t i o n ;
poor get more than the r i c h can one r e a l l y

transferred
onl y when the

t a l k about the

redi s t r i b u t i on of income t hrough governmen t expendi t u r e s ."
As f a r as t h i s
partially

correct.

5

st udy i s concer ned, DeWulf i s onl y

Tabl e 22 shows the cumu1a t i ve s hares

of income r ecei ved by each i ncome cl ass f o r the v a r i ous
distributions

of i ncome .

These income s h a r e s , combi ned

wi t h the cumul at i ve d i s t r i b u t i o n

of f a m i l i e s ,

r e pr e s e n t the

poi nt s of Lorenz curves which descri be the i nequa1i ty of
the income d i s t r i b u t i o n .
the Gi ni

At the bottom of each column i s

c o e f f i c i e n t of i nequa 1i t y .

6

The t a b u l a r form of

p r e s e n t a t i on i s p r e f e r r e d because, as Fi gur e 1 s hows, i t
would be d i f f i c u l t

to show many di f f e r e n t Lorenz curves

on a g r a p h , especi a l l y when the poi nt s of the curves are
as cl ose t o ge t he r as those i n Tabl e 22.
Gini

coef f i cients

can be mi sl e adi ng because i t

p os s i bl e to ha ve a l ower Gi ni

c o e f f i ci ent ass oci a ted wi t h

a Lorenz curve which descr i bes a more unequal
tribution

at e i t h e r

is

1ow or high income l e v e l s .

income d i s ­
For exampl e,

by comparing the cumul at i ve per cent of i ncome columns f o r
the vari ous i ncome d i s t r i b u t i o n s

i n Tabl e 22,

one f i nds

tha t the l owest i ncome br acket s have 1 ar ge r p r o p o r t i ons of
5

tion,"
1962) ,

DeWul f, op . ci t . , p. 23.
C
James N. Morgan, "The Anatomy of Income D i s t r i b u ­
Review of Economics and S t a t i s t i c s ,
Vol . 44 (August
p. 281.

237

FIGURE 1
Per cent of
Income

Per cent of
Popul at i on

Illustration

total

of Lorenz Curves

income when income i s def i ned to i n c l u d e p u b l i c

s e ct or spending and adj ust ed broad income.
this

appar ent paradox i s

Thus,

it

The reason f o r

t h a t the Lorenz curves i n t e r s e c t .

is p os si bl e f o r t he Gini

coefficient,

which i s

the r a t i o of the area between the Lorenz curve and the
di agonal

to the t o t a l

area under the d i a g o n a l ,

to be

s ma l l e r f or money income even though the income shares of
the l owest income br acket s ar e g r e a t e r f o r the d i s t r i b u t i o n s
of t o t a l

income.

This s i t u a t i o n

where curve A r epr esent s
and curve B r epr esent s

is shown i n Fi gur e 1,

the d i s t r i b u t i o n

total

income;

of money income

the curves i n t e r s e c t

a t the p o i n t which r epr esent s 66 per cent of the p o p u l a t i o n .

238

Both convent i onal
tributions

of t o t a l

and r a d i c a l

anal yses y i e l d

income ( a d j u s t e d broad income plus

publ i c s e c t o r b e n e f i t s ) which ar e more equal
broad i ncome under As s umpti ons 3 and 4.
6,

7,

8

and 9 wi t h

Tabl e 22;

dis­

than adj us t ed

( Compare columns

columns 4 and 5 by r eadi ng across

the hi ghe r the number of the same 1i ne s the more

equa 1 the d i s t r i b u t i o n of income at t h a t 1 evel
Under Ass umpti on 3,

the radi cal

analysis yi elds

of i ncome. )
a pos t ­

p ubl i c s e c t o r income d i s t r i b u t i o n whi ch is onl y 3. 24
per cent mo re e q u a l , in terms of Gi ni

c o e f f i c i e n t s , than

the p r e - p u b l i c s e c t o r d i s t r i b u t i o n

of a dj us t e d broad

income.

under Assumption 3,

The convent i onal

however, y i e l d s

a total

per cent more equal

analysis

income d i s t r i b u t i o n

t h a t i s 8. 29

than adj us ted broad i ncome.
Concl usi on

There is a var i et y of imp 1i c a t i ons from the res u1ts
of t h i s

s t u d y . Perhaps the most i mp or t a n t is t h a t t o t a 1

pub l i c s ec t or expendi t ur es are not c o n s i s t e n t l y
a res u l t which di f f e r s

from the concl usi ons of mos t pr evi ous

ex pendi t ur e i nci dence st udi e s .
res u l t

reg ress i v e ,

The i mportance of t h i s

is tha t the choi ce of assumpti ons about t he a l 1 oca-

t i on of genera 1 goods becomes c r u c i a l
f or

i n making the case
7
the redi s t r i but i ve i mpact o f t he p u b l i c s e c t o r .
^Thi s p o i n t

Mai t a 1 .

is

a l s o made by Aar on and Mc Gui r e and

239

Tabl es

20 and 21 show t h a t s p e c i f i c goods ex pendi ­

t ures are c o n s i s t e n t l y r e g r e s s i v e ,

i n both ana l y se s,

t h a t t o t a 1 expendi t ur es , even i n t he convent i onal
under Assumptions 4 and 5,
h i ghe s t income b r a c k e t .

but

ana l y si s

become p r o gr e s s i v e i n the

In the r a d i c a l

analysis,

this

i nci dence p a t t e r n i s even more pronounced and i s common to
a l 1 f i v e assumpti ons .
11

is o f t e n sai d t h a t s t a t e and l o c a l

taxes can

b e , and even shoul d b e , r e g r e s s i v e because t h e i r unfa vor ab 1 e i mpact i s o f f s e t by expendi t ur es which ar e d i s t r i b u t e d
1a r g e l y in f a v o r of 1ow-i ncome groups .
s tudy show tha t expendi t ur es

The r e s u 1ts of t h i s

i ndeed accrue as 1 arge p e r ­

centages of the i ncome of 1 ow-i ncome f a m i 1 i e s , but al s o t h a t
publ i c expendi t ur e s
f a m i l i e s as w e l l .

are i mpor t ant to the most wea 1 thy
The r e d i s t r i b u t i o n

of i ncome which

r e s u 1 ts from p u b l i c s e c t o r ex pendi t ur es

does not c o n s i s t e n t l y

come about a t the expense of the upper- i ncome gr oup.

Ra t he r ,

under the ra di c a 1 assumpti ons and Assumpti ons 4 and 5 i n
the convent i ona 1 a n a l y s i s ,

1 ow-i

ncome groups b e n e f i t

pr i nci pa 1 l y a t the expense of the upper mi d d l e - i ncome
brackets.

Thus,

even though t her e may be an equal i zi ng

i n f 1 uence on the i ncome d i s t r i b u t i o n

from pub 1 i c e x pendi -

t u r e s , the redi s t r i b u t i on does not always i mpl y a r e duc t i on
in the c o n c e n t r a t i o n of i ncome in the hi ghe st i ncome
bracket.
I f gener al
or i n p r o p o r t i o n

goods b e n e f i t s a re not shared e q u a l l y ,

to income,

and i n f a c t redound p r i n c i p a l l y

240
to f a m i l i e s

i n the h i ghe s t income b r a c k e t s , as t he Mai t a 1

f u n c t i o n i mp l i e s ,

the programs undert aken by governments

which produce these benef i ts tend to f r u s t r a t e e f f o r t s

to

reduce the c o n c e n t r a t i o n of i ncome i n the hands of a
weal thy f ew.

Thi s is not the i n t e n t i on of gover nment s, a t

l e a s t under the con ven t i ona 1 ass umpti ons about t he ftfl e of
the S t a t e .

On the c o n t r a r y , t h i s

p r e d i c t e d by the r a d i c a l
di t ur es

i s the r e s u 11 which i s

analysis,

i.e.,

s p e c i f i c expen­

f or l e g i t i m i z a t i o n and accumul at i on purposes o f t e n

benef i t ot her cl asses d i r e c t l y ,

whi l e t he u 1 1 i mate i n t e n t

of the St at e i s to serve the i nt er es ts of a s i n g l e ,

princi­

p a l l y weal t h y , c l a s s .
These r e s u 1ts al so lend support f o r the wi despr ead
di s s a t i s f a c t i on among mi d d l e - i ncome f a m i l i e s .

Thi s di s -

cont ent may in p a r t be a r e s u 1 1 oT"t he s u b j e c t i v e ev a 1 uat i on
of b e n e f i t s from p u b l i c expendi t ur es and the p e r c e p t i o n tha t
these groups are not r ecei vi ng what they cons i der to be
t h e i r s ha re of b e n e f i t s .
to p o i n t out t h a t

Thi s s tudy can go no f u r t h e r tha n

these pe r c e pt i ons may be v a l i d ,

Ass umpti ons 4 and 5,

f o r the income br acket s

$7, 000 to $ 8 , 000 l e v e l .

under

above t he

I n the convent i ona1 anal ys i s ,

re di s t r i but i on occurs from a 11 the br acket s above t h i s
l evel

to a 11 of the br acket s be 1 ow.

under Ass umpti ons 4 and 5,
$25,000

l ose,

I n the r a di cal

the br acket s between $7 , 00 0 and

re 1 a t i ve to the d i s t r i b u t i o n

broad i ncome, wh i l e

an al ys is

of adj us ted

the 1 ower br acket s and t he h i g he s t

br acket r ecei ve i ncreased sha res of income.

241'

The r e s u l t s of t h i s
s ome q ua1i f i c a t i o n s .
study and ot hers

s t u d y , however, ar e s u b j e c t to

The most basi c 1i mi ta t i on of t h i s

like i t

i s t h a t the res u l t s of

t he study

may be def i ci ent because of the genera 1 e q u i 1 i b r i urn problem
which was di scussed in Chapt er 1 1 .

11 i s u n r e a 1i s t i c to

examine the i mpact of a p u b l i c s e c t o r by assumi ng t h a t
the impact can be measured by i n s e r t i ng a p u b l i c s e c t o r
i n t o a pr i va te economy, wh i l e al so ass umi ng t h a t t he under ­
l yi ng i ncome d i s t r i b u t i o n
adding the publ i c s e c t o r .
however,

does not change as a r e s u 1 1 of
In the case of a s i n g l e s t a t e ,

t h i s problem i s mi nimi zed because of t he r e l a t i ve

uni mportance of the s ta t e 1s p u b l i c s e c t o r compared to the
pub l i c sect or s of the f e d e r a 1 government and o t h e r s t a t e
and l oc a l

government s.

F u r t h e r , t her e are 1i mi ta t i ons i n some of the da ta
used to a 11 oca te s p e c i f i c expendi t u r e s .

I n some cases

da ta do not e x i s t f o r Mi chi gan f o r 1 970 and i t
to use n a t i o n a l

da ta f o r di f f e r e n t y e a r s .

a mi nor shortcomi ng because the o v e r a l l

was necessary

Thi s

i s pr obabl y

res u 1 ts of the

study are r e l a t i vel y i nsen si t i ve to smal l

changes i n the

d i s t r i b u t i o n of a ny s i n g l e expendi t u r e ca t e g o r y .
The choi ce of a l l o c a t i v e

t echni ques f o r d t s t r i but i ng

genera 1 goods benef i. ts i s al so not r esol ve d.

As the data

in Tabl es 20 and 21 i n d i c a t e ,

i n o v e r a 11

i nci dence which r e s u l t
are not g r e a t ;

t he di f f e r e n c e s

from the f i r s t

t h r e e assumpti ons

however, i n the case of t he M a i t a l

f u n c t i on,

242
the i nci dence r e s u l t s ar e s i g n i f i c a n t l y
r e s u 1 ts of the f i r s t

di f f e r e n t from the

t hr ee assumpt i ons.

There has been no a t t e mp t in t hi s s tudy t o choose
among these a 11 oca t i ve techni ques. ,

but the use of t he

c o s t s - i n c u r r e d - o n - b e h a l f - o f concept would t end to make the
per f a m i l y ass umpti on the mos t a t t r a c t i ve i n t he conven­
tional

model.

The per f a mi l y assumpti on is a t t r a c t i v e

because general

goods (and t he e x t e r n a l

s p e c i f i c goods) are provi ded f o r
of soci et y .

The Mai t a l

b e n e f i t s of

the benef i t of a 11 members

f u n c t i on i mpl i e s t h a t the val ue of

benef i ts recei ved by var i ous

i ncome br acket s depends on the

s u b j e c t i v e eva 1 ua t i on of the benef i t s , r a t h e r than t he
i n t e n t of the government when i t

provi des the benef i ts..

I n the r a d i c a l model , t he Mai t a l
to f i t

the ci rcumstances of government expend i t ur es

cl ass goods.

It

t h a t capi t a 1 i s ts
mo re w i l l i n g
acts

f u n c t i on seems
for

i s much more o b v i o u s , in the r a d i c a l

model ,

(who are p r i n c i p a l l y wea 1 t h y ) would be

to pay f o r the out put s of a governmen t whi ch

to enhance and p r o t e c t the i n t e r e s t s of the capi t a l i st

class.

Perhaps i t

i s some i m p l i c i t or cover t awa renes s of

the cl ass bi as of the p u b l i c s e c t o r which accounts i n p a r t
f o r the posi t i ve associ a t i on of w i l l i n g n e s s
income in the convent i onal

model .

to pay wi t h

In order to be comparabl e

to the convent i onal model , however , the radi cal model
butes onl y genera 1 goods b e n e f i t s

by the Mai t a l

distri­

function;

cl ass goods b e n e f i t s ar e i nc l uded i n di sposabl e income.

243

Regardl ess of the me r i t s of any of the assumpti ons
about genera 1 goods b e n e f i t s ,

resea rchers shoul d be caut i ous

about ac ce pt i ng Mai t a l ' s judgment t h a t hi s f u n c t i on pr ovi des
q

"be 1 i evab 1 e and unambiguous"
i nci dence.

es ti ma tes of net f i s c a l

Wi t h i n the con v e n t i o n a 1 model

of expendi t ur e

i nc i de nc e which uses the c o s t s - i ncur r ed concep t of bene­
fi t allocation,

t her e is room f o r a range of ass ump t i ons

about the d i s t r i b u t i o n o f gener al

goods benef i t s .

use of a v a r i e t y o f t echni ques w i l l
these st udi es

The

a l l o w the readers of

to s e l e c t the assumpti ons and r e s u 1 ts which

f o 1 1 ow from t h e i r own e v a l u a t i o n of the me r i t s of the
var i ous p r o c e d u r e s .
Finally,

the use of the c o s t s - i ncurred concept is

open to ser i ous c r i t i c i s m .

Thi s s tudy has assumed^ as

have ot her expendi t u r e i nci dence s t udi es , t h a t t he costs
of government prog rams ar e i d e n t i c a l
those pr ogr ams.

to the benef i ts of

As the di scussi on i n Chapt er 11 i ndi c a t e s ,

t her e i s no a p r i o r i basi s

for this

ass umpti on.

11

is

c l e a r t h a t more i n forma t i on is needed about the s u b j e c t i v e
e v a l u a t i o n of b e n e f i t s of both s pec i f i c and gener al
expendi t u r e s .

Aa ron and McGuire and Ma i t a 1 have demon-

s t r a ted tha t s u b j e c t i v e e v a 1 uat i on of gener al
benef i ts y i e l d s

goods

significantly

di f f e r e n t

than ot he r a 11 oca t i on p r o c e d u r e s , and i t

goods

i nci dence r e s u l t s
i s reasonab 1 e to

ass ume t h a t procedures which embodi ed s u b j e c t i ve eva 1 uat i on
of s p e c i f i c goods b e n e f i t s would a l s o y i e l d
q

Mai t a l , op.

c i t . , p.

561 .

di f f e r e n t

244

results,
were

especially

cost-benefit

is

that

the

lim itation
intangible

class-biased

State

tracted

the

from

di r e c t

class

(class

actual

r e c i p i en t s .

benefi t

of

the

identity

assumption

dropped.
A further

tion

if

valuation

goods

of

goods

Rejection

benefits

of

spending

b e n e fi t s ) must

benefi ts
of

the

a 1 1 ow f o r

may

costs-incurred

benefi ts

mo n ey

would

the

accrue

by

accrue

to

to

method

possibility

addition

a

be s u b ­

accounting

the

in

which

assump­

that

the

of
the

benefi ts

speci f i c goods.
In

that

s u m,

different

w i 11 y i e l d

in

the

analyses
incidence
should

and

wi t h

r e s u 1t s ,

be

a set

the

the

but

of

the

of

a re

of
the

such

toward

models
ra d i cal

to

of

State

r e s u 1t s .

proof

has

for

This
been

measuring

shortcomi ngs.

the

study

c o m p a r i son
of

tha t

the

than

expendi tu r e

does
of

not
the

expendi t u r e

future

r e s o l v i ng

rather

demonstrate

the

procedures

s h o r t c o m i ngs

o r i en t e d

role

i n ci dence

approach

its e lf

or

designed

ha ve s e r i o u s

purpose

incidence

conventional

studies.

of

paribus

framework

about

di f f e r e n t

which

central

probably

problems
either

i n ci dence

the

been

subs t a n t i a t e d ,

context

ceteris

i n v a 1 i da t e

has

assumptions

been

the

expendi tu r e
While

s tudy

s i gni f i c a n t l y

h y p o t h e s i s has
a c h i eved

this

r e s ea r c h

s ome o f

the

r e p l i c a t i ng
incidence

TABLE
Percentage

Families

Under 1
1-2
2-3
3-4
4-5
5-6
6-7
7-8
8-9
9-10
10-12
12-15
15-25
O v e r 25

6. 27
7.17
5.41
4.68
4.25
4.40
4.73
5. 57
6.16
5.97
11 . 4 5
13.18
16.59
4.16

(1)

(2)
Broad

I n c o me

. 21
. 92
1 .20
1 . 51
1 . 81
2. 28
2. 90
3.81
4.68
5.12
11.17
15,78
27.81
20.80

Used

to

D istribute

(3)
C o n s u m p t i on

.84
2. 33
2.42
2.57
2.74
3. 20
3.82
4. 93
5.87
6.11
12.77
16.65
25.56
10.19

Expenditures

(4)
C apitalist
I n c o me

.02
. 31
.73
1 . 27
1 .65
2.03
2. 53
2.33
2.12
2.46
4.36
6.62
16.03
57.54

(5)
Unempl oyment

3. 20
3. 60
2.80
2.40
7.10
7.30
8 . 20
6.90
8. 00
8 . 20
13.60
10.00
16.10
2.60

(6)
Di v i d e n i

0
.32
.73
1 . 94
2.42
2.63
3.07
2.46
2.41
2.25
3.97
5.92
15.93
55.95

245

I ncome
Bracket
($000)

Series

23

TABLE 23 ( c o n t ' d . )
(7)
Public
Assistance

(8)
Social
Security

(9)
Local
Education

(10)
Higher
Education

(11)
Auto O p e r a t i n g
Expenditures

Li nder 1
1-2
2-3
3-4
4-5
5-6
6-7
7-8
8-9
9-10
10-12
12-15
15-25
O v e r 25

2.70
18.10
17 . 4 0
14.80
14.40
8.00
4.30
3.80
3.60
2. 40
3. 80
3.30
2. 90
. 50

3.10
14.80
1 4 . 20
11.90
10.00
7.70
5.70
5.10
3.80
3.60
5.10
6. 00
6. 90
2.10

2.62
3.00
2.26
6 . 54
5. 94
7.30
7.83
8.51
8.61
8.36
11 . 9 3
13.73
10.68
2.68

1 . 07
1 .22
. 92
2.98
2.71
4.88
5. 24
6.25
6.99
6.78
14.79
1 7 . 03
23. 29
5.84

.12
.50
. 66
.82
2.22
2.78
4.24
5. 56
7.02
7.68
16.90
15.60
28.80
7.10

(12)
Imputed
Rent

1 .77
2.67
2.30
2. 44
2.32
2.35
2.87
3.35
4.62
5.03
12.23
17.35
29.11
11 . 5 8

246

I ncome
Bracket
($000)

TABLE

Notes:

Co l u mn
C o l u mn
Co l u mn

Co l u mn
Co l u mn

Co l u mn
C o l u mn
Co l u mn
Co l u mn

Table!.
T a b l e 3.
D o u g l a s R o b e r t s , " I n c i d e n c e o f S t a t e an d L o c a l T a x e s
A Cas e S t u d y f o r M i c h i g a n , 1 9 7 0 " ( u n p u b l i s h e d P h . D .
d i s s e r t a t i o n , Michigan State U n i v e r s i t y , 1975).
T a b l e 3.
(4)
Adapted from the d i s t r i b u t i o n in Richa rd Musgrave,
(5)
e t . a 1. , Th e D i s t r i b u t i o n o f F i s c a l B u r d e n s and
B e n e f i t s , p . 10.
R o b e r t s , op. c i t .
(6)
T a b l e 2.
(7)
T a b l e 2.
(8)
Bureau o f the Census, C u r r e n t P o p u l a t i o n R e p o r t s ,
(9)
S e r i e s P- 2 0 , Nu mb e r s 185 and 2 2 2 , p. 4 and p . 4 0 ,
r e s p e c t i v e l y ; a l s o CPR, P - 6 0 , No. 74
77.
See
t e x t , Chapter V I,
fo r explanation.
( 1 0 ) C u r r e n t P o p u l a t i o n R e p o r t s , P - 2 0 , No. 2 3 1 , p . 21
(11 ) M u s g r a v e , e t . a l . , o p . c i t . , p . 1 0 .
( 1 2 ) T a b l e 3.
(1)
(2)
(3)

247

Co l u mn
Co l u mn
Co l u mn

23 ( c o n t ' d . )

CHAPTER XV
AN ADDENDUM

This
that
for

study

Douglas

Roberts

Michigan.^

studies
fiscal
Table

was

ma k e s

The
it

completed

at

his

almost
tax

the

of

the

these

to

present

public

under

of

in

time

study

both

estimates

sector

estimates

same

incidence

c o i n c i d e n t a 1 comp 1 e t i on

possible

incidence
24 s h o ws

completed

of

the

Michigan

a selected

in

set

net
1970.

of

assumpti ons.
For
to y i e l d

public

the

net

fiscal

c o n v e n t i o n a 1 and
for

the

the

yields
the

These

least

most

of

regressive

^Roberts,

op.

uses
are

expendi tu r e

r e g r e s s i ve

These

goods

which

assumptions

extremes

the

4,

for

c it .

248

the

for

were

benefits

used

were
both

on

because

a per

the

the
1

fam ily

u t i 1i ty
they

repre­

Assumption

an d As s u m p t i on

both

used

Assumption

Mai t a l

incidence:

results

results

assumptions

es t i m a t e s

radi ca1 models.

Assumption

function.

t wo

i nci dence

a l 1 o c a t i o n of g e n e r a l

b a s i s and

sent

expenditures,

1

4 yields

conventional

and

TABLE
Net

Fiscal

I n c o me
Bracket
($000)

in

Michigan,

Conventional
(1)
Most
2
Regressive

286.08
76.78
41 . 95
33.93
25.65
17.79
11 . 9 9
8.83
6.76
5. 33
2. 78
1.17
- .78
-1 . 7 4
.4068

1970,

As

Assumptions
(2)
Least
3
R e g r e s s i ve

93.03
2 6 . 95
1 5. 50
17 . 8 6
1 4. 53
9. 58
5.80
3.71
2. 53
2.17
.59
. 53
.83
7.16
.4396

Percentages

of

Adjusted

Radical
(3)
Most
R e g r e s s i ve

126.21
36.49
21 . 6 5
21.11
16.78
11 . 61
7 .54
4.41
2.39
1 .78
-.32
-.82
-.92
10.65
.4347

Broad

I n c o me ^

Assumptions
(4)
Least
R e g r e s s i ve

54.16
17.03
11 . 0 5
14.57
12.19
8.11
4.92
2.05
.33
.13
- 1 . 61
-1 . 4 8
- .63
14. 56
.4486

] >To t a l p u b l i c e x p e n d i t u r e s m i n u s n e t t a x e s ( s e e t e x t f o r e x p l a n a t i o n ) .
“ C o l u mn s 1 and 3 a r e t h e r e s u l t s o f s u b t r a c t i n g R o b e r t s ' m o s t p r o g r e s s i v e t a x
^ e s t i m a t e s f r o m t h e d i s t r i b u t i o n o f e x p e n d i t u r e s u n d e r A s s u m p t i o n 1.
C o l u mn s 2 and 4 a r e o b t a i n e d by s u b t r a c t i n g R o b e r t s ’ l e a s t p r o g r e s s i v e t a x
e s t i m a t e s f r o m t h e d i s t r i b u t i o n o f e x p e n d i t u r e s u n d e r A s s u m p t i o n 4.
Source :
D o u g l a s R o b e r t s , " I n c i d e n c e o f S t a t e and L o c a l T a x e s :
A Ca s e S t u d y f o r
M i c h i g a n , 1970" ( u n p u b l i s h e d Ph.D. d i s s e r t a t i o n , M i c h i g a n S t a t e U n i v e r s i t y ,
1 9 7 5 ) ; and T a b l e s 6 , 1 0 , 20 and 2 1 .

249

Under 1
1-2
2-3
3-4
4-5
5-6
6-7
7-8
8-9
9-10
10-12
12-15
15-25
O v e r 25
G I N I COEFFI CI ENT

Incidence

24

250
radical

models.

the

form

the

expendi t u r e

of

the

of

net

2

Roberts'

i nci dence

fiscal

subtracting

i n c i dence
r e g r e s s i ve

from

distribution

which

least
i ng

regressive

the

least

distribution
The
taxes

the

of

results
i nc ome

tax

to

of

of

taxes
the

to
tax

of

expendi tu re s

to

be

borne

(pro-poor)

able

da t a

using

the

do

been

in

there
of

total

the

r e s i den t s .

expendi tu re

4.

not

i nciude

by

income
taxes

net

Th e

Further,
benefit

taxes

which

on

federa1
difference

expendi t u r e s ,

between

amount

30

the

a s iani f i cant

assumptions)
and

subtract-

approximately

reduced

state
is

by

Th e

assumptions.

federal

deduct

incidence
1.

As s u m p t i on

resi dents ,

also

distributed

by M i c h i g a n

from

Roberts'

34. 3 p e r c e n t
s h i f t i ng

i n c i dence

o b t a i ned

subtracted

under

Thus,

tax

genera ted

A s s u m p t i on

from

to

is

from

is

lim its

sector.

expendi tu r e

using

in

wi t h

the

regressive

taxes

have

also

these
of

lim it

progressive

tax

reduction

re t u r n s .

on

public

o u t - o f - s ta te

being

(31.5 p e r c e n t

of

the

are

comb i n i ng
es t i ma t e s

pattern

results

t o t a 1 taxes

from

2

incidence

which

from

d e p e n d i ng

res u 1t s

amount s

amounts

r e c e i ved

mos t

p r o g r e s s i ve

shi f t e d

percent

the

a nd

data

yields

R ob e r t s 1 most

di s t r i b u t i o n

incidence

extremes,

assumptions

Th e mos t
by

tax

of

the

amount

taxes

greater

part

a s s u me d
of

B e c a u s e o f t h e pos s i b i 1 i t y o f c o n f u s i o n b e t w e e n
t h e t e r m s " p r o g r es s i v e" and " r e g r e s s i v e , " i t i s a p p r o p r i a t e
t o o n c e m o r e d e f i ne t h e i r u s a g e i n t h i s c h a p t e r .
Incidence
i s r e g r e s s i ve when t h e p r o p o r t i o n o f e x p e n d i t u r e s a n d t a x e s
d e c 1 i nes as i n c o m e r i s e s .
P r o g r e s s i ve i n c i d e n c e i s , o f
c o u r s e , j u s t the r e v e rs e .
C o n f u s i o n may a r i s e b e c a u s e
r e d i s t r i b u t i o n o f i n c o m e r e s u l t s f r o m p r o g r e s s i ve t a x e s a nd
r e g r e s s i v e expendi t u r e s .

251
this
and
of

difference
the

federal

public
the

revenue.

As

Table

most

is

is

conventional
which

$1 5 , 0 0 0

i ncome

The

p rogres s i vi ty

res u 11 o f

using

c o mb i na t i on
least
top

of

however,

all
in

the

i n come

the

top

through
the

brackets

tax

da t a

the

is

the

Under

fiscal

highest

t wo

r e g r e s s i ve

$1 2 , 0 0 0

net

is

to
pro­

b e ne fi ci a r i e s .

principally

f u n c t i on ,

yield

the

an incidence

are

Assumptions
also

of

incidence

brackets

Ma i t a 1 u t i 1 i t y

other

net

least

yields

thereafter

expenditure

progressive

only

and

The

result

pro-poor.

assumption,

taxpayers .

bracket;

or

s h i f t i ng

the

i n c i dence

r e g r e s s i ve ,

r e g r e s s i ve

although

fiscal

conventional

net

is

a n d mi s e e l 1 a n e o u s

r e g r e s s i ve

are

is

remainder

basically

a s s u m p t i on ,

pa t t e r n

the

out-of-state

the

cons i s t e n t l y

b r a e ke t s

gress i v e ,

while

by

24 s h o w s ,

r e g r e s s i ve

i n ci dence

for

expendi t u r e s

of

sector

i ncome

accounted

offset,

d e b t - f i nanced

sources

the

although

2 and

3 wi t h

p rogress i vi ty

the

the
in

the

bracket.
Both

conventional

distributions
i ncome)

3

c o e f f i ci ent
Gini

of

which

b r o a d i nc ome

in

is

are

mo r e

a d j us t e d

coefficients

Table

t o t a 1 net

24 a r e

of
.4068

income

eq u a 1 l y

(pre-public
of

expenditure

the
an d

(post-public

d i s t r i bu t e d

sector
broad

assumptions

i ncome).

i nc ome

i nc ome

is

In

the

a d j us t e d

Gini

.4477 , w h i l e

distributions

.4396.

sector

than

Th e

yield

mos t

the

i 11 us t r a t e d
reg res s i v e

3
ture

A d j us t e d b r o a d i nc o me
b e n e f i t s minus t a x e s .

plus

public

sector

expendi-

252
case,
the

the

only

t i on

1.81

the

a net

between

to

fiscal

than

income

benefi ci ary

in

Table

1e a s t

in

r e d u c t i on

which

smaller
but

than

under

the

i neq u a 1 i t y

in

and

the

percentage

res u l t s

the

but

exten t

$25 , 0 0 0 .
the

top

terms,

than

pa t t e r n
of

the

four

s tops

bracket
than

of

at

from

the

any

of

much

conven­
$15,000

is

the

a s s ump­

is

the

bracket

a net

brackets

the

least

net

fi sc a 1 incidence

r e g r e s s i ve

d i s t r i b u t i ons
the

r e c e i ves

any

which

through

top

Under

r e g r e s s i ve

pattern

bracket,

Regress i v i t y

an d

most

occurs

r e g r e s s i ve

24.

brackets,

the

R e g r e s s i vi t y

radi ca1 assumption,
the

income,

i nci dence

tha t

a grea t e r

$6,000

is

percent

broad

as s u m p t i o n ,

analysis.

$25,000

adjusted

9.14

radi ca1 analys i s the

r e g r e s s i ve

tional

is

percent.

yields

less

of

r e g r e s s i ve

In

to

coefficient

coefficient

least
is

Gini

bracket

s hown

top

t wo

i nc ome

mor e

net

benefi ts ,

between

$4,000

an d

$25,000.
Although
of

t o t a 1 net

i nc ome

r a d i c a 1 a d j us t e d
the

Gini

which

the

of

least

the

is

cient)

than

and

is

b road

is

both

mo r e

i ncome
the

from

reg r e s s i v e

( a 2.31

percent

r e d i s t r i b u t i ve
and

( by

brackets.

broad
the

brackets .

percen t

i ncome ,

and

mi d d l e - i nc ome

than

r e d u c t i on

pattern

h i g h - i ncome

. 81

distribution

distributed

is

brackets
On t h e

ra di c a 1 d i s t r i b u t i o n

unequal

again

mos t

equally

mi d d l e - i n c o m e

adjusted

h i g h - i ncome

mor e

low-

r e g r e s s i ve

i nc ome

pattern

rad i cal

coefficient)

benefits

expense

the

in
the

of
the

in

on e

at

other

the
hand,

t o t a 1 net
Gini

coeffi-

r e d i s t r i b u t i ve

brackets

to

low-

253
The

results

assumptions

are

of

the

sim ilar

most

to

those

for

Connecticut.^

Ea pen

of

the

i nci dence

net

fiscal

consistently

r e g r e s s i ve

g e n e r a 1 goods
study.

5

Differences

exported
b u t i on
the

taxes

in

the

results

of

These

public

of

that

at

are

net

the

use

impact

impact

redistributive

of

sector

is

of

4

of

to

make

the

pattern

in

1 9 6 7 was
about

1-3

used

the

d e fi ci ts

it

in

income

this
and

d is tri-

di f f i c u l t

the

the

to

The

fiscal

the

compa r e

lim its

somewher e

is

is

under

other
impact

c it.

is

of

study.

the

The

actual

between

the

however,

significantly
the

lim its
of

24

public

under

i n t e r e s t i ng,

sector
only

Table

d i s t r i b u t i on

period

lies

equali zing

op.

the

Michigan.

income.

118-122.

on

in

Michigan

in

11

percent)

s h o wn

one - y e a r
s how

public

a margi n a l l y

pp.

of

results

the

24.

Eapen and Eapen,

5 1 bi d . ,

done

a s s u m p t i ons

influence

probably

the

(9.14

only

distribution

the

incidence

Table

that

Connecticut

assumptions,

c o n v e n t i o n a 1 ass u mp t i o n .
Tab 1e 24 s h o w

study

that

a truncated

s tudy

i n t e n ded

in

recent

found

th ree

of

during

fiscal

s hown

in

conventional

detail.

least

sector

extremes

mo r e

Eapen

a

amounts

an e q u a l i z i n g

res u l t s

pa t t e r n

the

of

Assumptions

the

conventional

exerts

i ncome,

in

im plication

under

sector

to

Connecticut

in

The
that,

and

and

under

identical

regressive

the

most

r e g r e s s i ve

presented
Mi c h i gan

influence

on

in
pub1ic
the

254
It
of

the

should

federal

regressive
would
this

be

than

study

with

other

include

all

r emember ed

offset
they

erroneous

aggregates
any

be

ma k e s
would

to

the
state

and

single-state

the

federal

the

tax

of

local

the

incidence

in

be.

net

fiscal

its

study
tax

the
data

impact
mor e

Therefore,

fiscal

a national

incidence

offset

including

otherwise

compare

results

that

incidence

study

systems,
which

it

which
or w ith

does

incidence

not

data.

of

BI BLI OGRAPHY

256
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