Taxation and Regulation
Uploaded by heroenglish on Nov 18, 2003
Governments have at their disposal a selection of instruments with which they can implement their policies. Amongst them, are the policy instruments of taxation, spending and regulation, mentioned in this essay title. I intend in this paper to discuss the various policy instruments, their pros and cons, the central concepts of ‘means’ and ‘ends’, and then examine the competing rationales for policy instrument choice. I expect then to be in a situation to be able to conclude with an example of government policy that uses the variety of policy instruments available in an effort to achieve its ends.
There exists a continuum of governing instruments with varying degrees of legitimate concern at the hands of government. At one end are extortion and persuasion, with the instruments of spending, taxation, regulation in that order leading the maximum degree, that of state ownership or nationalisation. Within the scale there also exists a classification of the various instruments available within the framework of voluntary instruments, such as family and community, then mixed instruments which include provision of information and taxation, and at the top end, where the level of state involvement is highest, compulsory instruments such as regulation and direct provision. Lester Salamon and Michael Lund suggest, quite rightly, that the different instruments involve varying degrees of effectiveness, efficiency, equity, legitimacy and partisan support, which affect their appropriateness for a particular situation.
Spending as a policy instrument refers to all forms of financial transfer to individuals, firms and organisations from governments or from other individuals, firms, or organisations under governments’ direction. The purpose is to financially reward a desired activity, or to encourage a programme which supports government policy; subsidies and grants for medical research for example, or even as an instrument used directly to promote government policy as we shall see in the case study.
Expenditure offers numerous advantages as a policy instrument. It can be used by governments as an incentive to the target group to carry out a particular action which although it may have seen as desirable could not have achieved for various reasons. It is a flexible instrument to administer because the individual participants can decide for themselves how to respond in light of changing circumstances. Consequently, by allowing them to devise their own appropriate response, subsidies may encourage innovation. A final observation is that the costs of administration may be lower as the onus is on the...