CHAPTER 1 INTRODUCTION

Defining the Field of Study Public Finance – the field of economics that analyzes government taxation and spending policies Public Sector Economics-see definition above Public Economics-see definition above What is not part of public finance

Public Finance and Ideology Organic view of government Mechanistic view of government

The Legal Framework Federal government Federal Constitutional provisions Article 1, Section 8 Article 1, Section 9 16th Amendment 5th Amendment

The Legal Framework State governments Local governments Federal constitutional provisions 10th amendment The State constitutions Local governments Derive power to tax and spend from the States Fiscal independence of local governments

The Size of Government How to measure the size of government Number of workers Annual expenditures Types of government expenditure Purchases of goods and services Transfers of income Interest payments Budget documents Unified budget Regulatory budget

State, Local, and Federal Government Expenditures (selected years) Relative to Economy Adjusting for Inflation Adjusting for Population 1 2 3 4 Total Expenditures (billions) 2005 Dollars (billions)* 2005 Dollars per capita Percent of GDP 1960 123 655 3,627 24.3% 1970 295 1,201 5,858 28.4% 1980 843 1,749 7,679 30.2% 1990 1,873 2,574 10,289 32.2% 2000 2,887 3,237 11,461 29.4% 2005 3,876 13,066 31.1% *Conversion to 2005 dollars done using the GDP deflator Source: Calculations based on Economic Report of the President, 2006 (Washington, DC: US Government Printing Office, 2006), pp. 280,284,323,379 Callouts highlight real, per capital and relative values

United States Bar representing US slides along graph from left to right Source: Organization for Economic Cooperation and Development [2006]. Figures are for 2005.

Source: Economic Report of the President [2006, p. 377]. Note increase in Social Security, Medicare and Income Security Note decline in Defense Callouts showing decline in national defense and increase in social security, Medicare and income security Source: Economic Report of the President [2006, p. 377].

Increase in public welfare Decline in highways Callouts showing decline in highway spending and increase in public welfare spending Source: Economic Report of the President [2006, p. 383].

Source: Economic Report of the President [2006, p. 377]. Social insurance and individual income tax have become more important Corporate and other taxes have become less important Brackets showing social insurance and individual taxes more important; corporate and other taxes less important Source: Economic Report of the President [2006, p. 377].

Source: Economic Report of the President [2006, p. 383]. Individual tax more important Brackets showing individual tax more important and property tax less important Property tax less important Source: Economic Report of the President [2006, p. 383].

Changes in the Real Value of Debt Inflation tax

Doing Research in Public Finance Public Finance journals International Tax and Public Finance Journal of Public Economics National Tax Journal Public Finance Public Finance Quarterly General-interest journals American Economic Review Journal of Economic Perspectives Journal of Political Economy Quarterly Journal of Economics Review of Economics and Statistics

Doing Research in Public Finance Other sources Journal of Economic Literature Brookings Institution’s Studies of Government Finance Congressional Budget Office reports National Bureau of Economic Research working papers Tax Foundation’s Facts and Figures on Government Finance U.S. Government Printing Office publications Statistical Abstract of the United States Economic Report of the President Budget of the United States U.S. Census of Governments Historical Statistics of the United States from Colonial Times to 1970

Doing Research in Public Finance Public Finance data available on internet Resources for Economists on the Internet U.S. Census Bureau University of Michigan’s Office of Tax Policy Research Urban-Brookings Tax Policy Center