The Peacock-Wiseman Hypothesis proposes that government spending evolves in a step-like pattern coinciding with social upheavals like wars. It involves three related elements: 1) The displacement effect, where spending increases during disturbances, raising taxes and the budget. 2) The inspection effect, where increased spending leads to reviewing revenue needs. 3) The concentration effect, where spending and revenue stabilize at a new higher level until the next disturbance causes another displacement effect. Along with these effects, it explains the concept of a tolerance level of taxation that a population is willing to tolerate.

1. The Peacock-Wiseman
Hypothesis
By:
Submitted To:
Submitted On:
MA (Economics)
Dr. Gyan Prakash
October 21, 2013
I Semester
Sujay S. Phatak
Gopal Patidar
Ajay Sahu
Sunita Gehlot

2. History
ALAN T. PEACOCK,
University of Edinburgh
JACK WISEMAN,
London School of
Economics
and Political Science
The Growth of
Public Expenditure
in the United
Kingdom (1961)
[A study of behavior of
British government
expenditures from 1890 to
1955]

3. The Essence
The government spending tends to evolve in a step
like pattern, coinciding with social upheavals, notably
wars.
Expenditure Growth
Government Spending
6
5
4
3
2
1
0
1
2
3
4
5
6
Period
7
8
9
10

4. The analysis of Peacock and Wiseman involves three
related elements, namely –
I. Displacement Effect
II.Inspection Effect
III.Concentration Effect
Along with these effects, a concept of ‘Tolerance Level of Taxation’ is
also explained by the duo.

5. Displacement Effect
Public
Expenditur
e in times
of Social
Disturbanc
es
Public
Expenditu
re in
times of
peace
3
6
2
4
2
1
0
0
1
1
2
3
2
3
4
4
Government Expenditure
GE (In times of Peace)
GE (Current)
To meet the
increased
expenditure due to
social
disturbances, the
government tends
to increase the
level of taxes
(immediate
effect).
This increases the
overall budget to a

6. Inspection Effect
With the
expenditure
increased, the
government along
with public review
the revenue
position and the
need to find a
solution of the
important problems
that have come up
and agree to the
required
adjustments to
GROWTH IN GOVERNMENT EXPENDITURE
GE (In times of Peace)
GE (Current)
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
1
2
3
4

7. Tolerance Level of Taxation
The amount
of tax that
a
population
is willing to
tolerate
and put up
with.
Tax Tolerance
3.5
3
2.5
2
1.5
1
0.5
0
1
2
3
4
5
Tax Tolerance Level
6
7
8
The public
attains a new
level of tax
tolerance
when the
inspection
effect is
created (as
the
expenditure
grows up).

8. Concentration Effect
Due to
displacement
effect, the public
expenditure goes
up, and
simultaneously the
inspection effect
rises the level of
revenue (by way of
taxes).
The levels of public
expenditure and
revenue are thus
stabilized to a new
level till another
disturbance occurs
to cause a
displacement
effect.

9. THANK YOU