Journal of Economic Psychology 3 (1983) 159-167 North-Holland Publishing Company

159

PUBLIC EXPENDITURE: PERCEPTIONS AND PREFERENCES

Alan LEWIS * University of Bath, UK

Received March 12, 1982; accepted April 27, 1982

Public preferences for government expenditure form an important part of the literature in public sector economics. However, in the academic literature these preferences have been largely considered as "given". Exceptions to this are where public preferences expressed referenda (e.g~ in California) can directly influence tax revenue and public expenditure levels. The present study follows an earlier one in using a questionnaire to ask individuals directly about their perceptions of and preferences for public spending. Replies from 50 respondents were analysed using multiple regression and analysis of variance techniques in order to ascertain whether public expenditure perceptions and preferences showed consistent and predictable patterns among young individuals with little or no experience of paying tax. The results showed that both perceptions and preferences for a series of seven macro-expenditure items were significantly different from one another and broadly predictable from individuals' self reported positions on 'left/right' scales. It is concluded that views about public expenditure may often form part of integrated attitudes with both perceptual and preferential components.

Introduction

Public expenditure, largely financed through taxation, is one of the major policy tools a government has at its disposal in the control of the economy. The nature of public preferences for government expenditure has become a central debating point in recent years partly due to the growth of public expenditure as a proportion of GDP in Britain, USA and many other countries, a growth which has contributed to what has been termed 'the fiscal crisis of the state' (O'Connor 1973).

What are the mechanisms of and influences on public sector growth? Theorising on these mechanisms takes many different forms, among

them are theories of public expenditure based on bureaucratic maximis- ation (Niskanen 1971); the self-interest of political parties and politi-

* Mailing address: Alan Lewis, Centre for Fiscal Studies, University of Bath, Claverton Down, Bath BA2 7AY, UK.

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160 A. Lewis/Public expenditure

cians (Downs 1957); self-interest of voters (Buchanan and Tullock 1965) and various politico-economic models e.g. Frey (1978), Pom- merehne and Schneider (1978). While these theories and models are considerably different from one another they have one thing in com- mon, namely their tendency to make assumptions about the preferences and motivations of bureaucrats, politicians and voters.

Psychology is largely an inductive rather than a deductive science and consequently it is natural for psychologists to want to find out about public expenditure, and thereby contribute to research in public economics and fiscal policy, by asking individuals themselves about their preferences. But exactly how this can be done raises many methodological problems - for example are hypothetical questions about preferences necessarily the same as the overt action individuals would take given the choice? What is clear is that the tax referenda in California and other states in the USA represent cases where fiscal preferences as expressed by individuals can directly affect fiscal policy.

Fiscal referenda and how public preferences should be reflected in government policy raise ethical and political questions as well as purely economic ones (see Lewis 1981b, 1982a, b, c). For example should PE policy always reflect the majority view as expressed in referenda? How referenda items are worded has an important influence on replies as does the media coverage before a referendum: the knowledge and expertise of the social psychologist is of particular relevance here, bringing to the fore the dilemma of whether the role of the psychologist should be purely positivist or more normative.

If fiscal policy is to reflect the preferences of individuals as expressed in referenda and attitude surveys, questions must be raised as to the quality of these preferences. For example is the aggregation of ill-con- sidered opinions any substitute for reasoned debate? Studies in Canada and the USA have shown widespread fiscal ignorance among the general public (Auld 1978; David 1980) and studies in Germany and Great Britain suggest this comparative fiscal ignorance also extends to politicians (Schmolders 1959; Lewis 1980a). It seems likely that fiscal awareness, fiscal consciousness and fiscal knowledge are all related and are among the most important aspects of any thorough understanding of fiscal preferences (Lewis 1982c).

A. Lewis~Public expenditure 161

The study

The present empirical study was carried out in conjunction with an earlier published survey by the present author (Lewis 1980b). In a small investigation of 200 electors, the results strongly suggested that prefer- ences for public spending showed considerable differences between macro-items leading to the conclusion that preferences followed a consistent and meaningful pattern. This conclusion was reinforced by the finding that preferences differed according to the voting preferences of respondents as well as their relative positions on a five point left /r ight scale. It follows from this result that public expenditure preferences as expressed in attitude questionnaires and referenda may be understood in terms of the political and ideological stances of respondents rather than in terms of self-interest narrowly defined. For example it is difficult to find a simple self-interest explanation of why a greater proportion of 'left wingers' and labour party supporters, as they defined themselves, favour reduced spending on defence.

An explanation for expressed preferences based on ideological ante- cedents is not intended to supercede explanations based on fiscal consciousness and predictions based on self-interest, rather this is seen as complementary to them. It was surprising to find respondents, few of whom were politically active, so closely reproducing the expenditure policies of the political party they normally voted for. It was this that led to an enquiry as to the development of these preferences by studying the preferences of a younger age group, namely university undergraduates, who have had little or no direct experience of paying tax or of voting in elections, to see whether they too showed consistent and non-random preferences underpinned by ideological antecedents.

The present study was also set up to investigate further the quality of preferences expressed in questionnaires. Can these preferences genuinely be thought of as part of attitudes? The evidence that the preferences form patterns which can be predicted by ideological variables gives support to the view that these preferences form part of attitudes, however the tradition in social psychology at least since the formu- lations of attitudes of Newcomb et al. (1964) has been to consider attitudes to comprise perceptual/cognitive elements as well as affective and conative ones. Surprisingly, although this description of attitude structure is widely used and accepted there are very few empirical studies which attempt to study the link between elements (see Lemon

162 A. Lewis/Public expenditure

1973). The present study therefore not only investigates the organisa- tion of preferences for public spending but also whether estimations of how much is spent on particular macro-items form consistent patterns (i.e. are non-random) and whether they too can be predicted by antecedents related to ideological dimensions. For example are prefer- ences for spending on 'Defence' significantly different from spending on 'Education'? Is there a tendency for people who want to see more spent on Defence to perceive that less is spent on Defence at present than do those who would prefer to see less spent on Defence?

Method

Fifty students from the University of Bath, chosen at random from the student register, filled in the questionnaire. Prospective respondents received the questionnaire in the internal mail and were assured that if it were filled in and returned by the closing date they would receive fifty pence. The sampling procedure ensured that postgraduate and undergraduate students studying a wide range of subjects took part, although the author's own school of the university, Humanities and Social Sciences, was excluded. A representative sample of the student population was unnecessary for the purpose in hand and was not attempted.

Respondents were first informed that the survey undertook to dis- cover how people view public spending and what changes they would like to see. Respondents were asked not to worry if they had to guess some of the answers. Respondents were presented with seven macro- items of public expenditure on the first page of the questionnaire, these were, ' Trade and Industry ' , ' Social security', ' Roads ' , ' Housing ' , ' Health and Welfare', 'Education' and 'Defence'. They were then asked to guess what proportion of the total budget was spent on each item. These results were expressed as percentages totalling 100%.

On the second page of the questionnaire the seven items of expendi- ture were listed again, but on this occasion respondents were asked to say what proportion of the total budget they would like to see spent on each item, these results were again recorded as percentages totalling 100%.

Respondents were then asked to say which political party (if any) they normally supported and to rank themselves on three nine point

A. Lewis~Public expenditure 163

scales using the familiar political dimensions used by Eysenck (1960) of 'Radical/Conservative ' , 'Tough m i n d e d / T e n d e r minded', 'Authori- tar ian/Democrat ic ' . In addition respondents also completed a nine point scale anchored with 'Left wing' to the left and 'Right wing' to the right. Respondents also completed the Wilson-Patterson inventory of conservatism (Wilson and Patterson 1968). All these independent varia- bles were used in multiple regressions with each of the dependent variables i.e. the estimation of expenditure on each macro-item and preferred expenditure on each item. Independent variables were also dichotomised as group factors in analysis of variance calculations.

Results and discussion

Fourteen simple multiple regressions were performed for each of the seven public expenditure estimates and the seven preferences. All six independent variables were included in each case, namely the four rating scales, the Wilson-Patterson measure of conservatism, and sup- port for particular political parties scored from left to right wing parties.

No significant F values were recorded for the multiple regressions for perceptual estimations of expenditure (d f= 6,43), R 2 values ranging from 0.2375 for 'Trade and Industry' down to 0.0596 for 'Defence' . However R 2 changes due to single independent variables added after the other five, were significant for the dependent variable estimations of 'Trade and Industry' with the 'Le f t /R igh t ' scale (R 2 change = 0.138, F--4.052, dr= 1,48, p < 0.05) and 'Health and Welfare' with the 'Radical /Conservat ive ' scale (R 2 change = 0.142, F--7 .27, dr= 1,48, p < 0.01).

When the preferences were analysed three items produced significant multiple regressions (R2): 'Social Security' (R 2= 0.321, F-3.39, dr= 6,43,p < 0.05); 'Defence' (R 2 = 0.39, F = 4.58, df= 6,43, p < 0.01); and 'Housing' (R 2 = 0.295, F - - 3.0, dr= 6,43, p < 0.05). Additionally R 2 changes were significant for single independent variables 'Le f t /R igh t ' with 'Defence' (R 2 change = 0.332, F = 7.22, df= 1,48, p < 0.025) and ' Radical/Conservative ' with ' Housing' ( R 2 change = 0.279, F = 6.01, df = 1,48, p < 0.025).

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Conservative scale ( ' r ' = 0.6258, p < 0.001). A series of simple bivariate correlations were then conducted revealing that the independent varia- bles of Political Party, Tough/Tender , and Democrat ic /Autocrat ic ratings showed no significant correlations (i.e. where p < 0.01) with any of the series of dependent variables. The Wilson-Patterson Conserva- tion score was significant and positively correlated with preferences for Defence spending ( ' r ' = 0.4293, p < 0.001). The Lef t /R igh t scale and the Radical /Democrat ic scale beh~ved similarly both being signifi- cantly and negatively correlated with preference for Social Security spending ( L / R ' r ' = -0.4529, p < 0.001; R / C ' r ' = -0.4400, p < 0.001) and Housing ( L / R ' r ' = -0.3971, p <0.002; R / C ' r ' = -0.5205. p < 0.001), and significantly and positively correlated with preferences for Defence spending ( L / R ' r ' = 0.5427, p < 0.001; R / C ' r ' = 0.4229, p < 0.001). Le f t /R igh t ratings were also significantly and negatively correlated with perceptual estimations of Trade and Industry spending ( ' r ' = - 0.3297, p < 0.01).

Owing to the comparative success of the 'Le f t /R igh t ' and 'Rad ica l / Conservative' scales as possible predictor variables these were then dichotomised for use in analysis of variance calculations. For the 'Le f t /R igh t ' scale people who rated themselves in the first five posi- tions were included in the 'Left ' group (n I --26), and those who rated themselves in the remaining four positions constituted the 'Right ' group (n 2 = 24). Similarly for the 'Radical /Conservative ' scale those who rated themselves in the first five positions formed the 'Radical' group (n 1 = 30) and those in the remaining positions the 'Conservative' group ( n 2 = 19).

Four 2 x 7 analyses of variance with repeated measures were then performed i.e. 'Le f t /R igh t ' by perceptual estimations, 'Le f t /R igh t ' by preferences, 'Radical /Conservative ' by estimates and finally 'Rad ica l / Conservative' by preferences. A significant effect for the perceptual estimates or preferences, showing significant differences between public expenditure items, would reinforce the view that these items were meaningful for individuals. Similarly a significant interaction effect between the 'Le f t /R igh t ' scales or the 'Radical /Conservative ' scales and the perceptual estimates or preferences would further substantiate the claim for articulate cognitive organisation underpinned by ideologi- cal factors. No significant main effects for the scales were pursued as the mean values of both perceptions and preferences for each di- chotomised group would add up to one hundred (100%, as described in the questionnaires).

166 A. Lewis/Public expenditure

The analysis of variance revealed that both perceptions and prefer- ences produced significant main effects (perceptual estimations, F = 21.95, df= 6,288p < 0.001; preferences, F = 37.8, df= 6,288,p < 0.001). Significant interaction effects were also recorded for the Lef t /Right groups and perceptual estimations ( F = 2.21, df= 6,288, p < 0.05) and for Left /Right groups and preferences ( F = 6.07, df= 6,288, p < 0.001).

No significant interaction effects were recorded for the 'Radica l / Conservative' groups either with perceptions or preferences.

The rounded mean estimates and preferences for each Left and Right group and overall are reproduced in Table 1 (these rounded means values are presented for illustrative purposes only).

The pattern of preferences follows the predictions derived from previous studies (e.g. Lewis 1980b). A series of two-tailed independent t tests revealed that the 'Left' group favoured higher spending than the 'Right' on Social Security (df= 48 in all cases, t = 3.19, p < 0.01) and Health and Welfare (t = 1.735, p < 0.01) while the 'right' group favoured more spending on Defence (t = 4.11, p < 0.001).

A comparison between the estimations and preferences in Table 1 also reveals larger differences between perceptions and preferences for the left group than the right, the one exception being for social security spending. There is clearly widespread ignorance of the proportion of expenditure on Social Security and Defence yet these reveal the largest differences in preferences between the groups. There is also some evidence that people in the 'Right' group have a more accurate picture of present day spending than the 'Left' group.

Conclusions

There are good grounds for concluding that both perceptions and preferences for public expenditure differ significantly between expendi- ture items and are non-random. Additionally it has been shown that both perceptions and preferences can be broadly predicted from re- sponses to Left/Right scales. A preliminary case has also been made that perceptions bear a systematic relationship to preferences.

It has been shown that even among a small, young, albeit intelligent but unpoliticised [1] sample of respondents, public expenditure prefer-

[1] Almost 50% of the sample said they did not normally support any political party.

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ences and perceptions reflect the expenditure policies of the major political cleavages in British politics (dimensions shared by many other countries), suggesting again that the foundations of these perceptions and preferences are laid in integrated attitudes rather than upon whim and fancy.

Future research would do well to explore the structure of these fiscal attitudes in more detail incorporating fiscal knowledge variables, no- tions of broad-based as well as more narrowly defined self-interest interpretations and other considerations including individuals' ideas about the proper role of government and causal attributions of wealth and poverty (see Lewis 1981a, 1982c).

References

Auld, D., 1978. Public awareness and preferences in Ontario. Dept. of Economics, University of Guelph, Ont.

Buchanan, J.M. and G. Tullock, 1965. The calculus of consent: logical foundations of constitu- tional democracy. Ann Arbor, MI: University of Michigan Press.

David, M., 1980. The use of attitude surveys in determining tax policy. Institute for Research on Poverty, University of Wisconsin.

Downs, A., 1957. An economic theory of democracy. New York: Harper. Eysenck, H.J., 1960. The psychology of politics. London: Routledge & Kegan Paul. Frey, B.S., 1978. Politico-economic models and cycles. Journal of Public Economics 9, 203-220. Lemon, N., 1973. Attitudes and their measurement. London: Batsford. Lewis, A., 1980a. 'Public awareness of the fiscal connection'. In: C.T. Sandford (ed.), Control of

public expenditure. Bath University Centre for Fiscal Studies Occasional Paper no 14. Lewis, A., 1980b. Attitudes to public expenditure and their relationship to voting preferences.

Political Studies 28(2), 284-292. Lewis, A., 1981a. Attributions and politics. Personality and Individual Differences 2, 1-4. Lewis, A., 1981b. Psychology, tax, politics and economics. Psychology News 23, 5-7. Lewis, A., 1982a. Rate and fiscal referenda: the issues. Political Quarterly 53(1), 73-77. Lewis, A., 1982b. The social psychology of taxation. British Journal of Social Psychology 2. Lewis, A., 1982c. The psychology of taxation. Oxford: Martin Robertson. Newcomb, T.M., R.H. Turner and P.E. Converse, 1964. Social psychology. New York: Holt,

Rinehart & Winston. Niskanen, W.A., 1971. Bureaucracy and representative government. Chicago, IL: Aldine. O'Connor, J., 1973. The fiscal crisis of the State. New York: St. Martin's Press. Pommerehne, W., F. Schneider, 1978. Fiscal illusion, political institutions and local public

spending. Kyklos 31(3), 381-408. Schmolders, G., 1959. Fiscal psychology: a new branch of public finance. National Tax Journal 12,

340-345. Wilson, G.D. and J.R. Patterson, 1968. A new measure of conservatism. British Journal of Social

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