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A note on the determinants of public dissatisfaction with government: economic and political factors affecting the public's attitude toward government - Review
American Journal of Economics and Sociology, The, April, 2002 by Richard J. Cebula, Chris Paul
CHRIS PAUL *
I
Introduction
FOR THE UNITED STATES, there is evidence that since 1965 the public has become increasingly dissatisfied with government, although the pattern of dissatisfaction with government has exhibited numerous rises and declines over this time. Nevertheless, it appears that there has been no formal empirical investigation of the determinants or causes of citizen dissatisfaction with government. The purpose of this study is to empirically investigate these determinants. The public is modeled as consisting of individuals who possess a utility function with utility negatively related to the level of dissatisfaction with the performance and behavior of government. In this instance the government is defined to mean the official policies and activities of the government and the behaviors of elected representatives.
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II
The Model
THE REPRESENTATIVE individual's utility function is structured as dependent on the extent of the individual's dissatisfaction with government actions and their consequences.
Thus,
(1) U = U(DIS), [U.sub.DIS] < 0
As the level of dissatisfaction rises, the utility level of the representative individual declines.
The next step is to identify determinants of dissatisfaction. Feige (1994:129), in investigating the extent of income tax evasion, notes that his results suggest, "that the increasing dissatisfaction with government ... arose as the result of the Vietnam War and the subsequent Watergate episode and sharply rising tax rates...." His statement clearly indicates that dissatisfaction with government consists of both pecuniary and non-pecuniary components. The pecuniary effects, such as higher tax rates, can be thought of as affecting individuals' wealth by impacting their capital stock or income. The non-pecuniary effects consist of government policies, such as the Vietnam War, or the actions or behaviors of government officials, such as Watergate, that individuals disfavor. The former identifies official government policies, while the latter captures malfeasance or incompetence of government officials. Thus, dissatisfaction (DIS) is structured as having two arguments: changes in wealth, W, and objectionable gove rnment policies, P:
(2) DIS = g(W, P), where [DIS.sub.W] < 0 and [DIS.sub.p]> 0.
That is, the level or degree of dissatisfaction with government is negatively related to the government's perceived effect on wealth, W, and positively related to the level or extent of disapproval of official government policies or politicians' behavior.
Turning first to the wealth argument, wealth is measured as the sum of the stock of physical capital (PC) and financial capital (FC), the two major asset categories held by most households:
(3) W = h(PC, FC), where [W.sub.pc] > 0 and [W.sub.fc] > 0.
The total wealth is determined by the stock of physical capital, PC, which produces a flow of services, such as owner-occupied housing, and household financial assets, FC, holdings of stocks and bonds, Changes in the real value of the physical stock of capital may be structured as the annual change in value or price net of the opportunity cost of funds times the value of the capital stock, or dPC = (%dvalue - interest rate) PC.
The largest single real asset held by most people is their home. Thus, an increase in the market value of real estate, particularly single-family homes, will positively impact individuals' wealth position and reduce their dissatisfaction with the government. However, higher mortgage rates (the cost of funds) will tend to reduce the appreciation gains, reducing wealth. The percent change in housing prices is used to measure the change in the value of holdings of physical capital; the home mortgage rate proxies the cost of funds. Hence, public dissatisfaction with the government's economic performance is expected to be a decreasing function of housing price inflation and an increasing function of the mortgage rate.
Additionally, a change in the cost of occupying or maintaining a home, such as an increase in energy prices, will reduce its market value and will discretely reduce the individual's real wealth. The reduction in real income is expected to result in heightened dissatisfaction with the government. A dummy variable equal to 1 for the oil price shock years of 1973 and 1979 is included to proxy large and conspicuous increases in the price of consumer goods, including the home.
As with physical assets, an increase in the value of financial assets will increase the wealth held by individuals and reduce their dissatisfaction with the government. The change in value of financial capital can be measured as the product of the percentage change in the price, or market value, of financial assets, the present stocks thereof and one minus the marginal tax rate or dEC = %dprice(FC) (1 - tx). The change in value of financial assets is measured in this study with the Dow Jones industrial average (DOW). Again, an increase in the DOW will increase wealth and reduce dissatisfaction with government. On the other hand, higher marginal income tax rates reduce the net wealth increases accruing to households and are predicted to increase the level of dissatisfaction with government. Inclusion of the tax rate as an independent variable in the equation is directly supported by Feige's statement as quoted above (1994:129).
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