|The tendency for a government\'s expenditure to increase more rapidly than its income from taxation and other sources. Any budget deficit could thus be labelled a fiscal crisis, but O\'Connor\'s (1973) classic study argues that a fiscal crisis of the state is a logical consequence of the evolution of monopoly capitalism rather than just the outcome of budgetary mis-management.
According to O\'Connor, the state has two main functions within a capitalist economy: to promote successful accumulation strategies for private capitals, and to ensure their legitimation. The former involves it providing social capital, such as the physical infrastructure within which enterprises operate and the trained labour force that they require. For the latter, it promotes social harmony through social expenses on items such as welfare services and the maintenance of law and order (cf. welfare state). O\'Connor argues that under monopoly capitalism an increasing proportion of investment costs must be met by the state while at the same time legitimation of the problems created by monopolies demands greater expenditure too. Thus the state must spend more, relative to GNP. To do so, it must tax more heavily, which, by discouraging investment and enterprise, can counter its pro-accumulation policies. Increasing demands on the state â€” from both capital (for social capital) and labour (for social expenses) â€” outpace its ability to meet them, stimulating a fiscal crisis. To counter it, social expenses may be cut (especially on the welfare state) while more is spent on using the ideological and repressive components of the state apparatus to protect accumulation. (For an extension of these arguments, see Held, 1987.)
In several countries the greatest pressure involved when social expenses are cut in a fiscal crisis is felt at the local state level, which is allocated particular responsibility for welfare service provision (cf. dual theory of the state: see also Newton, 1980). This was a major issue in the 1980s â€” in the United Kingdom and in New Zealand, for example (Johnston, 1992) â€” when governments tackled the crisis by \'rolling back the frontiers of the state\' and promoting privatization and deregulation whilst limiting the powers of the local state apparatus.Â (RJJ)
References and Suggested Reading Held, D. 1987: Models of democracy. Cambridge: Polity Press; Johnston, R.J. 1992: The internal operations of the state. In P.J. Taylor, ed., The political geography of the twentieth century. London: Belhaven Press.Â Newton, K. 1980: Balancing the books. London and Beverly Hills: Sage Publications.Â O\'Connor, J. 1973: The fiscal crisis of the state. New York: St. Martin\'s Press.