Price of the State - a Crutch for Democracy

PriceoftheState.org offers a whole package of free services that help alleviate cognitive problems of voters. The Price of the State thus becomes an important crutch for the better functioning of democracy and public finances. It gives people information about how much they pay in taxes and what is the cost of each service. Everything in an easily accessible form.

Price of the State - a Crutch for Democracy

In the past decades, Economists have come up with multiple findings concerning errors in reasoning of people as consumers. Even though scientists consider themselves independent, it does not prevent them from offering recommendations how to solve these issues. These are then acting as ' water for a political mill' that interferes with ordinary people in their lives. At the same time, as many as 95% of the studies that recommended interventions did not look into whether the same problems were also faced by public officials.

However, there has been a recent sprung of academic research which looks into how consumers do in the position of voters in the 'political market.' Their main finding is that the situation is even worse than in the position of consumers.

On one hand, it is not surprising. The same person can spend hours choosing his new toaster and then decide who to vote for in a heart beat, standing by the ballot box. The reason is that when we are choosing our toaster, the decision will directly affect the way our breakfast will look like in the upcoming months. When it comes to voting, this is not the case. The decision is just a grain of sand in a desert of voters and does not have particular and direct influence over who will hold the office in the upcoming years.

So - what have the behavioral economists found out, while examining voters? They have discovered two systematic failures. Both are concerning public finance and both cause the fact that democracy  does not work the way it should:

To begin with, voters have a problem to determine how much and which taxes they pay for services that are provided by the state. This is called a 'fiscal illusion.' But it is not purely coincidential. Politicians are often motivated to propose taxes the burden of which is hard to assess by the voters. For example, special levy on non - life insurance. A politician is able to collect more money and spend it on popular public expenditure (in an attempt to  be re-elected), while at the same time not upsetting voters with higher taxes.

This is also the reason why a certain part of taxes and levies is 'paid' for employees by the employers. Why are income taxes and levies automatically deducted from wages every month and why are they not paid together on the day of tax declaration. Why is the proportion of indirect taxes (VAT and excise duties) increasingly difficult to identify (especially when they are in force for a longer period of time), etc.

And this is precisely where the educative webpage The Price of the State can be of great help. Every person can simply learn how much the state collects on individual taxes, and one can even easily calculate how much he or she contributes to the running of the state (most recently also with the new mobile application Your Price of State). It is therefore about making the information available to the masses that politicians are so fond of disguising.

The second problematic area is the perception of how much money is spent on individual services. It is the so-called 'the mistake of not paying attention to the opportunity costs.' Voters often respond to public spending only if they sound "socially appropriate". Who would dare to argue that health care (sick people!) is already getting enough resources, or that pensions (livelihoods of the elderly!) should no longer increase. To the simple question: "would you abolish subsidies for farmers?" the ordinary man recalls unmachined fields, empty shelves and unemployed farmers.

In order for the voter to decide rationally in the above-mentioned areas, he or she needs to be aware at least of the basic opportunity costs. So, what we lose, if we increase the expenditure on pensions, or if we leave the subsidies in place. In fact, public finances are a closed box. When you add somewhere, you have to take somewhere else.

All these information is easily accesible either from the Public Expenditure Universe or from the Receipt for Government Services issued annually. Thus, the voter can at least get an approximate idea of the cost of the costs spent on various services.

 

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