Public Sphere and Private Life/ Dena Goodman

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Public Choice Perspectives on the Poll Tax Author(s): J. G. Cullis, P. R. Jones and O. Morrissey Source: The Economic Journal, Vol. 101, No. 406 (May, 1991), pp. 600-614Published by: on behalf of the Wiley Royal Economic SocietyStable URL: http://www.jstor.org/stable/2233564Accessed: 16-03-2015 09:06 UTC

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The Economic Journal, ioi (May I99I), 6oo-64

Printed in Great Britain

PUBLIC CHOICE PERSPECTIVES ON THE POLL TAX

J. G. Cullis, P. R. Jones and 0. Morrissey*

I. INTRODUCTION

The Community Charge which was introduced to England and Wales on I April I990 is part of a reform of local government finance with the avowed intention of enhancing local accountability by creating a direct link between local expenditure, local taxation and local voting. This paper applies public choice theories to evaluate both the economics of its introduction and the responses of the public to the Charge in its initial months. Section II reviews the main public choice rationale for the Community Charge and relates accountability to efficient resource allocation. Section III examines evidence on voter awareness and fiscal illusion in order to consider whether the replacement of domestic rates by this tax will increase local accountability. The stance taken in Sections II and III is one in which the Conservative government is privy to the messages of public choice theory and acts as if to further the 'public interest' by eliciting the 'correct' responses to slay the local government Leviathan.' However, any government may have interests other than, and divergent with, those of the public and this will introduce distortions even in the implementation of public choice prescriptions. This point is developed in Section IV to offer one explanation of the recent history of the Community Charge.

II. FISCAL AWARENESS AND LOCAL TAXATION: ONE PUBLIC CHOICE

PERSPECTIVE

Many economists persuaded by the allocative efficiency of market mechanisms believe that the benefit principle of taxation is more consistent with this property than alternatives. The broad application of this principle at the local level seems to inform the introduction of the charge in two respects. First, it is argued that all beneficiaries of local authority spending should contribute towards the costs of local government programmes. The Department of the Environment (i 986) notes that, when relying on domestic rates, only I 8 million of the 35 million voters in England were directly liable for this local tax. Moreover, when rate rebates were taken into account, only 34O% of electors paid full domestic rates. Ever since de Tocqueville (i835), critics of the political process have been concerned that a minority might be tyrannised by a majority. Public choice scholars, insistent on the need for a tax constitution to

* The authors are grateful for the helpful comments of an anonymous referee and David Greenaway on an earlier draft of this paper.

l Ironically, because of the possibility of fiscally induced migration, Leviathan should be relatively constrained at the local level anyway (see Aronson, I974, and Oates, I985b).

[ 6oo ]



[MAY I99I] PUBLIC CHOICE AND THE POLL TAX 60I

restrain Leviathan, take, as a first constraint the need to levy taxes on all voters. For example, Brennan (i984, p. 67) argues that:

In the first place, there is the possible requirement that taxes be uniformly applied to all individuals. This requirement would have the effect of moderating the possible transfers from the minority to the majority because the majority would have to impose the same taxes on itself that it imposes on others.

Second, as well as the need for all voters to bear the tax, there is a requirement that, as far as possible, voters should perceive the full cost of government programmes. Sandford and Robinson (I975) explain the growth of public expenditure in the United Kingdom in the I 970S in terms of increased finance of local authorities by central government grants. Recipients of local authority services are thereby alleged to misperceive the full tax cost and to over indulge. With the introduction of the Community Charge it is claimed that voters 'have a serious incentive to consider the possible costs of their candidates before they cast their votes' (Mason, I 989, p. I o). If voters are to be informed as to the link between benefits and costs these prerequisites are important. However, it will be argued later that more is required to make the Community Charge operate as a benefit-related tax.

The main effects and provisions of the Charge can be analysed with reference to the position of the median voter (see Fig. i), which is central to the analysis of simple majority voting and to the public choice perspective.2 Fig. i illustrates how the decision by voters as to the extent of local government activity can be distorted by fiscal illusion. Two forms of fiscal illusion are evident. The first distortion affects the preferences of the median voter (and, indeed, all voters in the local community). 'Leviathan' arguments (reviewed by Wolf, I 987) suggest that individuals' choices are biassed by a tendency found in Western democracies to criticise the market and to revere the public sector. Wolf offers the following observations as indicative of this bias. First, it is mainly 'bad' news which is reported about the operation of the market. Criticisms are generally aimed at the status quo and, although Western economies are mixed, this is mainly an attack upon the market. Second, it is noted that interest groups, in search of economic rents, tend to highlight failings of the market. Third, those who work in the public sector have interests in appearing overly optimistic with respect to their capability to redress market inefficiencies. Finally, Wolf suggests that a legacy of the Western socialist tradition remains so that voters are still favourably disposed to state provision. Whilst it is possible to respond that such assertions are unproven, they are the kinds of arguments that are found frequently in the 'Leviathan' literature. To the extent that they are relevant, their effect is to increase voters' preference for publicly provided goods. Therefore, in Fig. I the indifference curves of the median voter are seen to reflect a predilection for goods provided by local government (i.e. the slope of the indifference curves is assumed to indicate 'too high' an absolute

2 Under majority voting, where preferences vary, the median voter will win provided the distribution is single-peaked and there is a uni-dimensional issue (Atkinson and Stiglitz, I980, pp. 300-I). The authors recognise that this approach is only one aspect of public choice, but it is apposite for this analysis.



602 THE ECONOMIC JOURNAL [MAY

Units of Y

m Yo I4

rI 3

g, Z_ : _-__---- v~ --- _ -- --_- - - g ? - - - - 3_ d - - - - - -v

l l I\ I ~~~~~~~~~~~~~~~~~~~I I

Y3 - - - - - - - - - - - - - - - - - _ - ___ _

of LG Fig. i. The median voter and the Charge.

MRS LG-Y' This kind of illusion which affects preferences is difficult to alter in

the short run. New information can be made available to voters but its impact on preferences is likely to take time.

By contrast, fiscal illusion can also affect taxpayers' perception of budget constraints. For example, Wagner (I 976) argues that inefficient oversupply of

local publicly provided goods is induced by the degree of complexity of the tax

structure, which makes it difficult for individuals to recognise the full tax-price of goods and services. Here the main focus of analysis is on those arguments which suggest that voters in local communities are unable to perceive the price of locally provided goods. The argument is that the introduction of a

Community Charge is a tax reform which increases taxpayers' awareness of

budget constraints. Such a tax reform may have an effect on voters' choices in

the short run. In Fig. ithe median voter decides upon the output of locally provided

goods (i.e. units of LG). Units of LG goods are shown on the x axis, while the

y axis measures the median voter's income (i.e. all goods other than LG). The

median voter expects to pay some income, i.e. yo-~yj' in taxes to the central

government. Abstracting from the other activities of central government, it can



I99I] PUBLIC CHOICE AND THE POLL TAX 603

be supposed that central government will use this revenue in inter- governmental grants to assist local authorities.3 Such a payment by the median voter is then a transfer.4 One key point of the Leviathan literature is that, while the median voter expects to pay this tax to central government, he is unaware as to the impact which it has on local government provision of services. The complexities of central government grant calculations are almost legendary. If payment of central government taxes is perceived as a one-way loss (as far as local government provision is concerned) this will simply shift the budget line towards the origin, from the intercept at yo in Fig. I to that at Yi). If the median voter were fully informed as to the inter-relationship between central taxes and local spending the tendency for 'over-provision' (as noted by Sandford and Robinson, 1974) would be reduced. Even those voters who did not face 'domestic rates would still realise that there was a price for local government provision and that this was paid in taxes to central government. The fact that so few people are seen as paying domestic rates would be less relevant to the government's critique of this local tax. We begin then by supposing that voters are unable to internalise information as to the effect of inter-governmental grants into their calculations. Central government taxes are seen as a cost, rather than as a transfer.

Unaware of the feedback of local provision on the demand by central government for greater taxation, the median voter decides how many units of local government goods should be provided from a position where income is net of central government taxation (i.e. Yo-Yl) and in-kind transfer financed by inter-governmental grant is not visible. The median voter believes that the full price of LG units will be met by payment of taxes to the local authority. The accurate price of a unit of LG is shown by the slope of yo A. Yet, for the median voter, the perceived price can appear to be far lower. For example, as only i8 million voters pay domestic rates, one possibility (implicit in the government's case for tax reform) is that the remaining 17 million believe that the tax-price to them is zero. If the median voter were found in this cohort a particularly 'excessive' demand of OX (associated with equilibrium eo on 14) would be registered in local elections. Instead, we take, as a starting point, the case where the median voter believes the budget line is yl-N. Allowing for the proportion of the population paying no local tax, for the proportion enjoying a domestic rate rebate and for a skewed distribution of property valuations, the reference point is a tax-price for the median voter which is positive but much lower than the accurate price. OD units are chosen (as dictated by el on I3') via the election of candidates for office in local government. The tax payment made to the local authority by the median voter is yl-d. Of course, now the actual payment of tax made by the median voter to the central government far exceeds the expected amount of yo-yl. It is equal to [(Yo-Y4) - (yl-d)], far higher

3 It is possible to incorporate the argument that central government uses some revenue to provide other goods: the y axis would simply reflect 'income' less tax to provide such goods and services. The purpose here, however, is to focus on the choice of the level of local government activity.

4 While yo-y1 is lost in central taxes, it may be exhausted in governmental assistance to local authorities if local taxes do not cover the full cost of locally provided goods.



604 THE ECONOMIC JOURNAL [MAY

than the amount originally expected. Local politicians have expanded expenditure programmes at what appears to be a low tax-price and they are therefore popular with the electorate. Central government is left to cover the residual tax costs and central government politicians to face the unpopularity of having to raise higher than expected costs.

Fig. i is inevitably a simplified illustration, designed to capture the main arguments that underlie the case for this particular tax reform. It would quickly become unwieldy if an attempt were made to incorporate all details of the reform. However, broadly speaking, we can see how the introduction of the Community Charge is expected to 'improve' local decision making. While it is unlikely that this tax reform will make voters all-knowing as to the role played by inter-governmental grants, it is possible that it will restrain their choices. The first thing to note is that all tax payers will be expected to pay the Community Charge (even if they are in the small minority who are eligible for some rebate). No voter is likely to be in a position to opt for as much as OX units of LG. As far as the median voter is concerned, the Community Charge will cover one-quarter of the costs of LG up to a fixed limit and, thereafter, additional local authority spending is to be financed i oo % from the Community Charge. By comparison with the analysis above, the median voter begins the appraisal by expecting to pay central taxes of yo-y1. The budget line is now Y1 B (with a slope which is 1 of the slope of yo A) and on this budget line welfare is maximised at e3 on I' with output OJ. However, the tax-price becomes the full price at output levels greater than OG and this serves to constrain demand even further. The fact that the voter is made liable for the full costs beyond output OG means that a kink has been introduced into the perceived budget line. The perceived budget line is Yi e3 A and it is clear that beyond e3 the median voter is being presented with the full cost of additional units of the good. This acts as an additional restraint and the likely demand for LG has fallen to OG units.

The kink in the budget line proves to be very important in this tax reform. While it is impossible to rule out a tangency between the indifference curve and budget line between Yi e3 and e3A, it seems more likely that the median voter will maximise welfare on I' at the kink.5 Maximization at the kink is compatible with many plausible shapes of indifference curve. Therefore, in deciding upon the position of the kink, the central government has done much to 'persuade' local voters that the 'best' output is OG. At OG local government tax is reduced to y1-g, though such a result depends on where the kink is placed. Perhaps of more importance for central government is that their liability for intergovernmental assistance is far lower than under the previous arrangement. Both planning and control of public expenditure is now made that much easier for central government because in this simplified example the costs of support grants to local authorities is no greater than Yo-Yl. Even if voters' preferences were such that a tangency occurred along e3 A of the budget line, central government is perfectly insulated against the increased costs. The

5 This tendency is reinforced by the observation above that the shape of the indifference may be biassed in favour of LG.




costs for central government can not exceed Yo-Yl Voters have no reason to be aggrieved that central taxation has grown far higher than expected. Also central government may have restrained local government expenditure. If LG is a normal good, less is likely to be chosen when voters confront a higher (accurate) tax-price, so that the 'Leviathan' in local government appears to be tamed. With preferences as illustrated, local government politicians supplying OL will be less popular than those offering OG. Increasing provision to OL pushes the median voter to a point such as i on I', where MRS LGY in absolute terms is less than the price ratio in the budget constraint.6

If local government politicians are to win votes by offering greater output of LG, this is only likely to be possible when the price of additional units of LG are reduced. The introduction of cost-effective programs and the whittling away of X-inefficiency may enable politicians to win votes when offering additional units of LG. For example, if the budget line Yi e3 A, anchored at Yl, can be made to swivel outward, the median voter would enjoy the effects of a price fall, increase welfare at a higher output of LG and reward local politicians with their vote. In this way, increased accountability via such a local tax reform appears to prompt more efficient use of resources. Also, to the extent that 'over- indulgences' by the median voter are curbed, there may be supply-side gains to be reaped by changes in tax rates which are set by central government. The tax on local businesses helps to finance such indulgences and this might be reduced as a consequence of lower output of LG. Similarly, with less calls on intergovernmental aid, central taxes might be lowered and a consequent macroeconomic gain made possible via a supply-side response to lower taxation (which in Fig. I amounts to saying that Yi e3 A would be bodily shifted outwards as a result of this tax reform).

This outline may be something of a caricature but we believe it has sufficient content so as not to be a straw man. The task now is an evaluation which falls into two parts. The first concerns the underlying rationale for the Charge and is the subject of the remainder of this section. The second is the link between local taxation and electoral outcomes and is discussed in Section III. Addressing the first is facilitated by Fig. i. The starting point is the benefit principle itself and how the budget constraint described relates to it. The benefit principle implies a proportional, progressive or regressive tax structure as the tax-price elasticity equals, is less than or is greater than the income elasticity of demand for the good in question (see Musgrave and Musgrave, I989). Why would an equal Community Charge produce an efficient result? Bowen (I 943) has shown that if the marginal costs of government are shared equally between voters a majority voting rule will lead to a Pareto optimal level of provision of a public good. Even though marginal benefits of voters differ, total output is optimal. However, it is necessary that preferences be distributed normally around the mean and over-provision or under-provision can result if they are

6 Of course it can be argued that such a kink can be introduced within a system which relies on domestic rates by simply limiting the assistance which central government offers to local government. The main point about the Community Charge, however, is that being set simply as a poll tax, the kink is likely to be far more obvious to voters.



6o6 THE ECONOMIC JOURNAL [MAY

skewed to the right or to the left (see Musgrave, I985) while the median voter model will not yield a unique electoral outcome if preferences are multipeaked. Equal taxes for voters is then not a robust prediction, even when the objective is simply to provide an efficient overall level of provision.

It is true that, in principle, the tax-price to the median voter can be manipulated to secure an efficient quantity but there is no obvious evidence that this type of calculation has been undertaken. This is not surprising given the requirement to know tax-price elasticities and income elasticities and how they vary with the specific good or service under consideration. Furthermore, equal tax-prices for local public goods make most theoretical sense where individual marginal benefits are identical. Only if the services being paid for out of the Charge were clearly local public goods (non-rival) consumed by identical (marginal benefit) individuals, would preferences necessarily be correctly reflected if each voter faced the same local tax bill. They would then be relating the same marginal benefit to the same marginal cost. However, as the marginal benefits are not the same to all, the Charge does not seem to be accurately 'benefit' related and the services provided have a variety of rivalness characteristics, whilst other local government activities are transfers. Those with large families and/or those above median incomes tend to use more education and health services; the existence of a police service probably confers greater benefit on those with valuable possessions.7 Allocation and distribution issues become intertwined.

Finally in this section the connection between the size of the public sectors and the growth performance of economies deserve a mention. The connection has been explored by a number of economists and the results are mixed (see, for example, Landau, I985, and Ram, I986). Whilst the local authority public sector is not to be ignored, there might be scepticism as to whether the changes proposed can have a large impact on the growth rate of the UK economy.

III. LOCAL TAXATION, FISCAL ILLUSION, AND PUBLIC CHOICE

Defenders of the Charge might argue that it is unreasonable to evaluate its characteristics in isolation. Problems exist with all taxes and the real question remains as to whether a system of equal Community Charges for voters is more benefit related than are domestic rates, and whether the Charge represents a reliable means of translating voter preferences into local government policy. Here we question whether (a) taxpayers are likely to be better aware of the Community Charge than of domestic rates, and (b) whether the Charge is more closely linked to benefits received than are domestic rates.

(a) Awareness The very arguments which spring from public choice analysis can provide a critique of the usefulness of the Community Charge to encourage voters to restrain local government. Downs (1957) noted the 'paradox of the rational

7 In this context, it is somewhat ironic that the Conservatives criticised domestic rates as failing to '... take any account of the compositioil of households or their consumption of local government services' (Department of Environment, 1 986, p. 39) .




voter'; since any voter has only a minute chance of affecting the outcome of an election, it is not in anyone's interest to incur the costs of acquiring information and turning out to vote. To explain turnout, analysts resort to the argument that individuals vote out of civic duty. In the United Kingdom it appears that, if this explanation applies, civic duty is of less importance for voting in local elections, average turnouts being only 40 0. If voters derive utility from the act of voting, rather than from their impact on the electoral result, it is still questionable that they will become well informed about the issues. Downs (I957, p. 253) added that: ' ... ignorance of politics is not the result of mere apathy; rather it stems from the great cost of obtaining enough information to exert effective influence'.

In UK local elections, it is clear that taxes are only one of many local issues and their importance varies between voters. Thus, out of a sample interviewed during the May I 986 local elections, only 9 0 gave rates as the most important local issue, while I 5 0 cited education and i i % unemployment; 50 0 did not cite any local issue as influencing voting, implying that national issues and political allegiances are dominant in local elections (Miller, I988, p. I6, see also Dunleavy, i980). Because the costs of detailed analysis are prohibitive, voters may be expected to minimise these costs by simply attaching their preferences to those of national parties, rather than analysing each issue in detail. Even if taxpayers were well informed about the affairs of local authorities, it is doubtful that they would attribute all grievances at the local level. As local government becomes more dependent on central government grants and as central government imposes more restrictions on the standards of locally provided services, voters may be forgiven for appearing to attach less importance to local government elections. Such considerations must call in question the view that the introduction of Community Charge will make local voters feel they need to be more responsive to local fiscal changes. Indeed, if central government really wanted to increase voter awareness it could be argued that such reform would be better applied to centrally collected taxes.

The links between local taxes and local fiscal awareness are then, at best, tenuous. But the real issue is whether they are strengthened by the introduction of the Community Charge. Again there is reason for doubt. Are the electorate really as ill-informed about domestic rates? It has been claimed that domestic rates are one of the more obvious and most easily perceived of all taxes. Kay and King (i986, p. I5o) note that: 'Domestic rates occasion much criticism. Often this criticism is less than coherent, and it sometimes seems that a principal reason for the volume of protest is simply that rates are an unusually transparent tax; there are few other cases where individuals are personally and directly responsible for making payments.' Tax transparency should be a feature which serves to resist 'excessive' growth. In the United States this experience has been evident in the sense that movements to restrain the growth of state spending can often be related to antipathy towards property taxation (see Cullis and Jones, I987 a). Does the storm of protest that accompanies a rate revaluation or rate poundage increase suggest lack of awareness? Is it the case, as the government contends, that 57 %0 of the electorate feel that they do not



6o8 THE ECONOMIC JOURNAL [MAY

pay domestic rates and another 9 0 feel that they pay only partial rates? With respect to these figures quoted in the Government Green Paper (i 986), the Widdicombe Report (I986, p. 40) notes from their own survey that:

When asked whether or not their household pays rates 9400 of electors said 'yes' and only 4 0 'no'. This indicates two things. First most electors who do not themselves pay rates are members of a household that does. Second, many electors perceive of themselves (or their households) as ' ratepayers' even when their rates are partially or wholly rebated. It was only through a subsequent more detailed question that our survey was able to discover that many of the 94 0 receive rebates, and even this was probably under-stated by respondents.

The legal incidence of the tax may fall on the head of the household, but the economic incidence may be shifted. In a recent study of tax consciousness in the United Kingdom, Cullis and Jones (I987 b) found that rates were one of the more often quoted taxes. With respect to non-houseowners there is the question of whether or not the incidence of the rates is passed to those who rent accommodation and, most importantly, whether or not they are aware of this. While there is no direct evidence for the United Kingdom, renters in the United States do appear to be aware of property taxes, although they do not treat the burden as the full nominal value. If US renters appear to undervalue property taxes this is not fiscal illusion but recognition that the incidence is not fully shifted to renters, and is appropriate insofar as 'renters consume less housing than do homeowners of the same income level' (Maftinez-Vasquez, I983, p. 2440). Renters may then legitimately not ' experience' thefull impact of property taxes but they are still aware of the tax (Oates, I988).

While throughout this section we have challenged the contention that domestic rates are less visible than the Community Charge to a taxpayer, there is one aspect of visibility that still requires discussion. This is awareness of what other people pay in taxes. At least with the original Community Charge each taxpayer knows that his or her neighbours are contributing the same in local taxes for the services that they consume. This principle that 'all should pay something' is enshrined in the Community Charge and the argument may be made that each taxpayer is more aware of his or her neighbour's tax. The challenge here is twofold. First, why should this make any taxpayer better off? Within the framework of the benefit principle of taxation it is possible that there is comfort in knowing that others are paying, because a sceptical taxpayer is less likely to believe that he is paying more as a consequence of the under- payment by others. But would this principle hold in a world where ability to pay was the basis for taxation? Here a taxpayer would know that the poorest person in the neighbourhood paid as much as the richest person. With interdependent utility functions, the welfare of the poorest person is likely to be weighted more heavily in the voter's utility function than the welfare of the richest person, so that awareness of equal tax payments of others is not necessarily welfare enhancing.8 The second challenge is that a taxpayer may

8 See King ( I984) for an analysis of such welfare independence on the choices of the local median voter.




not know what his or her neighbour pays when local taxes are raised by the Community Charge. There is always the possibility that some neighbours pay less (they enjoy a rebate) but perhaps of more importance is the possibility that some pay nothing. In these early days of the tax reform, non-compliance has been extensive and it is doubtful that existing taxpayers are confident that all their neighbours are paying a specified Community Charge. With risk aversity, uncertainty about the cost implications of a refusal by others to pay the poll tax may reduce welfare as well as influencing one's own compliance behaviour.

(b) Benefit receipt Even if taxpayers are aware of domestic rates the Community Charge may well be a more benefit related tax than rates, although property taxes have typically been seen as benefit related. Musgrave (i 98 I, p. II 4, emphasis ours) notes:

The case for integrating tax and expenditure decision is evident... This is the essence of the Wicksellian message ... In some instances linkage between the two blades of the scissors is provided, more or less effectively as in the case of property taxes ...

A considerable part of the benefit of local authority expenditure is related to property. Moreover, the assignment of revenue shares from property taxes helps voters make decisions. Yet the government counter argument emphasises that a substantial proportion of local authority taxation (e.g. education) is more closely linked to individuals per se than to their property. To this extent the Community Charge may be a more benefit related tax. The issue can only be resolved by empirical work.

A study by Bramley, Le Grand and Low (i 989) analyses evidence on usage of services carried out by 'a major and representative' local authority. Only about io % of expenditure went on services which were clearly pro poor and about 20% were biased towards those services (e.g. education, roads, leisure services) which favoured the better off. By comparison with the current rating system, the poll tax did not prove to be a good benefit related tax. The authors conclude: ' ... the Government is mistaken in its assertions about the use of local services ... The retention of the rating system is a more attractive option if indeed a benefit tax is what is being sought' (p. 204). The empirical evidence is sparse, but the case for the Charge being more benefit related, as claimed by the government has yet to be established.

IV. THE COMMUNITY CHARGE, ELECTORAL GAIN AND GOVERNMENT

IDEOLOGY: ANOTHER PUBLIC CHOICE PERSPECTIVE

The discussion so far questions the argument that a shift to the Community Charge would meet either the benefit principle of taxation or the demands of the public choice school for greater tax visibility. Recent analysis of political business cycles suggest that changes in government policy are invoked more by ideology and by the constraints on government's political position (as evidenced in public opinion polls) than the issues discussed above (e.g. Frey, I978).



6io THE ECONOMIC JOURNAL [MAY

Would this interpretation provide a better explanation for the introduction of the Community Charge? We begin by examining the proposition that the structure of tax reform and recent amendments to it are explainable in terms of two general arguments. One argument is electoral the other ideological:

(i) A switch to a Community Charge appeared to hold the prospect that 'high spending' Labour Party local councillors would face electoral difficulties when more voters became tax conscious.

(ii) If for reasons of ideology small rather than large government is preferred then with respect to Fig. i, it has been noted that the introduction of a kink in the budget constraint is likely to encourage local authority provision at a level determined by central government.

There is more than a hint that commentators suspect that the underlying motive for the change is simply to reduce high spending by local authorities.9 (Note the resort to Charge capping, making the effective budget constraint in Fig. i yi e3hH, when this objective seemed to be under threat.) Morrissey, Cullis and Jones (I990) argue, in keeping with political business cycle literature, that the shifting position of the government with respect to this tax reform can be explained by the position of the government in the public opinion polls. It appears that central government misread the situation and, when it became clear that the political cost of such tax reform would be faced by the central government party in office, the more radical aspects of the reform became muted.

The political costs became apparent from both opinion polls and the May I990 local elections. That central government, rather than local government, would be blamed by the electors for high poll taxes might have been expected. Survey evidence suggests that the difficulties of local authorities are attributed to central, rather than local, government (Miller, I988, pp. 33-5). Hughes (I989) notes thatAocal authorities appeared able to use the occasion of tax reform to increase taxes above those of previous years, because central government, rather than local government, would be perceived as 'villains of the piece'

It is obviously too early to fully evaluate the impact of the introduction of the Charge on local elections, nor do we yet have the comprehensive comparable data set required to do so. However, some indications can be derived from the limited information on the May I990 local elections. The Charge was only one salient factor, but we wish to assess its significance in the context of the Conservative Party argument that, if Labour-controlled councils set higher Charges, local voters will register their disapproval by voting against them.

Some data on io0 local districts are summarised in Table I; all are in ' One example of a recent comparison of the pros and cons of the Poll Tax concludes: 'The argument

between domestic rates and the community charge (CC) is finely balanced ... They share many defects. Neither is fair ... Neither is buoyant as a source of revenue ... Neither has much relation to local services used by the taxpayer ... Neither achieves greater accountability of local authorities to the voters ...' UJohnson, I990). Whereas other commentators note that the underlying objective is to restrain local fiscal activity. For example, Sandford (I990) presents a humorous discussion as to how replacing the Poll Tax by a local expenditure salt tax would achieve government objectives. Local governments with high tax rates would be forced to reduce the rate of tax on salt to that in lower rate localities, or else lose revenue by seeing their residents travel to purchase salt elsewhere!



I99I] PUBLIC CHOICE AND THE POLL TAX 6I I

England but not in London, and in none of them was there a net loss of seats from Labour to the Conservatives. For this set of districts as a whole (All), the average level of Charge was C36o, a 45 % increase in average household local tax bills compared to rates and 4I % greater on average than the target level of Charge set by central government. Labour, on average, made a net gain of one seat from the Conservatives. The single most striking conclusion from Table i is that the 20 districts which remained under Conservative control had, on average, the highest Charge (L373) while the ten which switched to Labour control had, on average, the lowest ((339). This may imply that our sample is not representative of all Districts; for a set of over go90 of all districts, those controlled by Labour set an average Charge (/J370) some 7 % higher than the average set by Conservative-controlled districts (Institute of Public Finance, in The Guardian, I2 March i 990).

It may well be that changes in taxes rather than levels of taxes have salience to voters. Although the data is open to question an inference about the importance of a change in local household tax bills (see ATax in Table i) can be drawn. For over go90 of districts, ATax was some 34 % on average, 36 % in those controlled by Labour and/or parties other than the Conservatives and 3'I % in those controlled by the Conservatives (op. cit.). Our sample should, if anything, be biased against Labour since the RLAB group experienced a ATax of 49 % on average, whereas the RCON group was at the national level of a 31 % increase: The observation that ATax was greatest in the group of authorities that switched to Labour is consistent with opposition to the Charge translating into opposition to the Conservatives.

A correlation of figures in Table i permits an elaboration of these points; the three most significant correlations are between ATax and Excess, Swing and Control.10 The implication is that household tax bills tended to increase by a greater amount in Labour-controlled districts but that this tended to increase electoral support for Labour so that they made a net gain in seats from the Conservatives. This is indicative of voter antipathy to the Charge for which they hold the Conservatives responsible although many other issues contributed to the outcome.1" The political cost of increases in local taxes may have been paid by the Conservative Party which reformed local taxation rather than the Labour Party which appeared, like the taxpayer, a victim of the reform.

In a public choice framework we would expect a political party to modify what it thought best for the country to allow for what it considers best for re- election. An analysis of the shifting position of the Conservative government is not inconsistent with such a prediction. In the first quarter of I 990 the strength of opposition to the Charge became obvious, the anti-Poll Tax protests in March i 990 being the more extreme manifestation. With high interest rates

10 The simple correlation coefficients being o-64, 0-27 and 0-27 respectively. Control refers to the party in control of the authority (taking the value I for Labour control, - for Conservative control and zero otherwise).

11 This conclusion has some support in the form of an OLS regression for All Districts (N = I05) which yields Swing = I-7I +0-02 Tax; the R2 of 0-07 is very low although the coefficient is significant (t = 2-88). The minimal explanatory power is indicative of the importance of other local, and national, issues outlined in Section III.



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Table i. Local Authorities: Taxation and May i990 Elections

Charge ATax Excess Swing Group ? % % no. N

ALL x 359-98 44.8 40.8 I.34 105

V 133% 403% 52.4% Io8-7%

RCON x 372 76 3I 4 349 I-05 20

v ii-8% 42.1% 52.5% I00o0% RLAB x 367-05 49-1 43-7 1-26 44

V I4 4% 58.8% 45.6% I07-3 %

SLAB x 339 I0 5I17 39 3 3 33 I0

V 13.9% 3V6% 23.9% 52-0%

ROTH x 347-77 45-1 39-9 I-04 26

V I2-0% 4I.6% 32.I % I34.8% SOTH x 352-25 47-3 45-0 I-29 6

V 11-7% 33-3 % 32-2 % I07-3 %

Notes: ALL, the I05 local districts for which we had comparable data for local taxes and iggo election outcomes, are in five groups: RCON, the 20 which remained under Conservative control; RLAB, the 44 which remained under Labour control; SLAB, the io of which Labour won control; ROTH, the 26 which remained under, and SOTH the 6 which switched to, the control of no single party or of a party other than Labour or Conservatives. For four variables we list the average value (x) and the coefficient of variation (v in percent):

Charge, the level of the Community Charge. ATax, the percentage increase in average household local tax bills resulting from the introduction of the

Charge. Excess, the excess of the level of Charge set over the target level set by central government, in percentage

terms. Swing, the number of seats Labour won from Conservatives (net). Sources: Swing is from results reported in The Guardian (5 May I990), all other data from Institute of Public

Finance (The Guardian, I2 March 1990).

and a slump in the housing market, the unpopularity of the Community Charge meant that voter preferences were switching to Labour. While at the end of I 989 Labour had a small 7-point lead over the Conservatives in opinion polls, by early April I990, following the introduction of the Charge, the Labour Party lead had stretched to 24 points. The Conservative government's response was threefold. First, they promised a full review of the tax (it appears that the outcome of this will be to make more central money available to local authorities, defer legislation such as 'Care in the Community' which would have imposed a new financial burden on local Councils, and extend the use of Charge-capping). Second, they continued to blame Labour Councils for overspending and claimed that any Labour alternative would inevitably prove less satisfactory. Third, in direct contradiction with earlier statements about local accountability the Conservative government turned to Charge-capped councils which in their opinion were overspending. The experience in the United States when attempts were made to constrain local property taxes was that it '... also fostered an increased centralisation ... (and tended) to give rise to an increased use of other local revenue sources and to a larger role for the state government' (Oates I 985 a, p. I28). The arguments outlined earlier imply that the Community -Charge, a policy which purported to put choice in the hands of



I99I] PUBLIC CHQICE AND THE POLL TAX 6I3

voters, was designed primarily to reduce the influence of local government and curb public spending. These latter objectives are long term and imply immediate actions to offset the greater than anticipated opposition to the Charge.

V. CONCLUSIONS

Public choice prescriptions are essentially concerned with returning choice to voters and discretion away from government. Reforms which increase awareness and which insulate minorities from the whims of majorities or special interest groups are applauded. However, paradoxically, the basic problem with such measures is that voters seldom have an incentive to involve themselves completely with the affairs of government and it is therefore questionable that there will be a significant pay-off from many such tax reforms. This is why many public choice economists often look for reform of the constraining rules of a constitution than to the involvement of well-informed voters. In the United Kingdom it is questionable that voters are more informed about the Community Charge than about household rates. It is unlikely, even if they were more informed, that the Community Charge performs better as a benefit related tax. There seems little case for an equal-sharing of the marginal costs of local authority expenditure programmes.

While public choice arguments can justify government action in introducing a Community Charge, public choice analysis suggests that they may be motivated more by their own ideology and by the prospect of medium term electoral gains. There are other cases where government chooses to introduce market-type policies for motives that may be purely political (e.g. with respect to privatisation see Jones and Cullis, I988). Governments with a tendency to move resources to the private sector may be as guilty as governments which expand the public sector of failing, when setting policy, to look further than the economic rents that flow from government office.

University of Bath

University of Bath

University of Nottingham

REFERENCES

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Atkinson, A. B. and Stiglitz, J. E. (ig80). Lectures on Public Economics. New York: McGraw-Hill. Bowen, H. R. (1943). 'The interpretation of voting in the allocation of economic resources.' Quarterly

Journal of Economics, vol. 58, pp. 27-48. Bramley, G., Le Grand, J. and Low, W. L. (i 989). 'How far is the poll tax a " Community Charge " ? The

implications of service useage evidence.' Policy and Politics, vol. I 7, pp. 187-205. Brennan, G. (I 984) . 'Elements of a fiscal politics: public choice and public finance.' The Australian Economic

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Cullis, J. G. and Jones, P. R. (i 987a). Microeconomics and the Public Economy: A Defence of Leviathan. Oxford: Basil Blackwell. and (I987 b). 'Fiscal illusion and excessive budgets: some indirect evidence.' Public Finance Quarterly, vol. I55, pp. 219-28.

Department of Employment (1986). Paying for Local Government. London: HMSO, Cmnd 97I4.



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De Tocqueville, A. (i835). Democracy in America, reprint edn. Oxford: Oxford University Press. Downs, A. (I957). An Economic Theory of Democracy. New York: Harper and Row. Dunleavy, P. (I980). Urban Political Analysis. London: Macmillan. Frey, B. S. (I978). 'Politico economic models and cycles.' Journal of Public Economics, vol. 9, pp. 203-20.

Hughes, G. (i989). 'The switch from the domestic rates to the community charge.' Fiscal Studies, vol. IO,

pp. I-I2.

Johnson, C. (I990). 'Pros and cons of poll tax.' Lloyds Bank Economic Bulletin, No. I37, May, pp. I-4. Jones, P. R. and Cullis, J. G. (i988). 'Privatisation, politics and property rights.' Biblioteca Della Liberta,

vol. 23, pp. 85-Ioo. Kay, J. and King, M. (i986). The British Tax System. Oxford: OUP. King, D. (i984). Fiscal Tiers: The Economics of Multi-Level Government. London: Allen and Unwin. Landau, D. L. (i985). 'Government expenditure and economic growth in developed countries: I952-76'.

Public Choice, vol. 47, pp. 459-78. Martinez-Vasquez J. (i983). 'Renters' illusion or savvey?' Public Finance Quarterly, vol. II, pp. 237-47. Mason, D. (i989). 'Post mortem on the poll tax.' Public Finance and Accountancy, 2Ist April, pp. I-I 2. Miller, W. (i988). Irrelevant Elections: The Quality of Local Democracy in Britain. Oxford: Clarendon Press. Morrissey, O., Cullis, J. G. and Jones, P. R. (I990). 'Poll tax paradoxes and the analysis of tax reform.'

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Sandford, C. T. (I990). 'The poll tax with a pinch of salt.' Accountancy (June), p. 27. and Robinson, A. (I975). 'Public spending.' The Banker, vol. I25, pp. I24I-56.

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Widdicombe Report (i986). The Conduct of Local Authority Business. London: HMSO, Cmnd 9797. Wolf, C. Jr. (i 987) . 'Market and non-market failures: comparison and assessment. ' Journal of Public Policy,

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CORRIGENDUM

We are grateful to Richard Barnett and Peter Smith for pointing out that we misinterpret the Charge legislation and that, under the present system, there is no kink in the budget constraint in Fig. i. To correct our Fig. I, Yi B can be read as the (fiscal illusion) perceived local budget constraint under Rates, and yo A is the actual local budget constraint under the Charge. After the reform, local authorities now receive a fixed grant independent of local taxes, effectively shifting the local budget constraint out. In the text, mistakingly believing that there is a kink, we suggest that this represents the final equilibrium. This is not, in fact, the case. However, it is not essential to the argument that follows. The Reform in grant can be intrepreted as shifting the y-axis to e3G and the Charge attempts to shift e3 B to e3 A. The remainder of the paper is largely unaffected.



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