The Complementarity between a Systems perspective and Functional Finance continue…
April 19th, 2008 — lekkerADDITIONAL ASPECTS OF PSE
One of the chief limitations of the PSE approach is that PSE subsidies may bemisdirected when used by state or local governments to pay employees already hired, or workers who would have been hired in the absence of the program. This kind of ‘fiscal substitution’ appears inherent in a PSE approach because it functions as a disguised form of revenue sharing.
A study prepared under the auspices of the National Planning Association estimated a fiscal substitution effect of 0.46 after one year. Subsequent studies produced conflicting results, but verified that the fiscal-substitution effect can be substantial (Bergman and Bennett, 1977). The greater the substitution of federal funds for state and local funds, the less effectively PSE will operate as an employment program. Read the rest of this entry »
