Question

The Peacock-Wiseman displacement effect implies a ratchet-like growth in public expenditure. Which sequence correctly describes the mechanism?

Q: Answer-The Peacock-Wiseman displacement effect implies a ratchet-like growth in public expenditure. Which s...

Peacock-Wiseman mechanism During a crisis, taxes rise sharply to fund the emergency. Citizens revise upward their tolerable burden of taxation. After the crisis, expenditure does NOT revert the new higher tax-expenditure plateau is maintained. The inspection effect the crisis exposes previously hidden social needs that are then addressed permanently. Result step-like ratchet expenditure path. Option C describes Wagners Law a separate, continuous-growth theory.

A Normal period → Social upheaval → Expenditure rises → Crisis ends → Expenditure returns to pre-crisis level → Long-run path smooth

B Normal period → Social upheaval → Expenditure rises sharply → Tolerable tax burden shifts upward → Crisis ends → Expenditure does NOT return to pre-crisis level → New higher plateau established

C Expenditure grows continuously because of Wagner’s Law — income elasticity of public goods > 1

D Social upheaval → Displacement effect → Inspection effect → Both effects together cause expenditure to fall as priorities are re-evaluated

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