User Fees, User Charges and Sales Lecture 9 November 1, 2005 PA 546 Constantine Hadjilambrinos

User feesgovernment sales of licenses to engage in otherwise restricted or forbidden activities. User feesgovernment sales of licenses to engage in otherwise restricted or forbidden activities. User chargescharges for voluntarily purchased publicly provided services. User chargescharges for voluntarily purchased publicly provided services. Salesrevenues from sale of goods and services provided by government (government monopolies, government-controlled toll goods, etc). Salesrevenues from sale of goods and services provided by government (government monopolies, government-controlled toll goods, etc).

PA 546 Constantine Hadjilambrinos Fees, charges and revenues from sales of goods and services are a popular way to raise revenue because they do not increase the tax burden. Fees, charges and revenues from sales of goods and services are a popular way to raise revenue because they do not increase the tax burden. Revenue garnered directly from users of government servicesmeets equity criteria. Revenue garnered directly from users of government servicesmeets equity criteria. Revenue signals level of demandcan enhance efficiency of government provision of goods and services. Revenue signals level of demandcan enhance efficiency of government provision of goods and services.

PA 546 Constantine Hadjilambrinos May induce government to impose fees that make use of services impossible for low income citizens. May induce government to impose fees that make use of services impossible for low income citizens. May induce government to provide revenue- producing goods and services to the detriment of other government services. May induce government to provide revenue- producing goods and services to the detriment of other government services. Government may be less efficient than the private sector in providing revenue-generating goods and services. Government may be less efficient than the private sector in providing revenue-generating goods and services.

User Fees and Licenses PA 546 Constantine Hadjilambrinos Fees must be paid by whomever wants to engage in activity that requires a permit/license. Fees must be paid by whomever wants to engage in activity that requires a permit/license. Fees do not purchase any government services. Fees do not purchase any government services. Vehicle registration fees, drivers licensesnecessary for vehicle operation but do not purchase any services. Vehicle registration fees, drivers licensesnecessary for vehicle operation but do not purchase any services. Business license feesdifferent than franchises Business license feesdifferent than franchises

User Charges PA 546 Constantine Hadjilambrinos Charges paid for delivery of a good or service to a relatively small number of individuals or businesses. Conditions: Benefit separability (identify who gets what) Benefit chargeability (ability to meter) Benefit chargeability (ability to meter) Benefits should be private rather than public (education?) Particularly appropriate when substantial waste would result from under-pricing.

Advantages: PA 546 Constantine Hadjilambrinos Charge offers test of demand for goods and servicesgovernment can respond. Charge offers test of demand for goods and servicesgovernment can respond. Charge offsets the cost of delivery of goods and services. Charge offsets the cost of delivery of goods and services. Charge allocates the cost of delivery equitably. Charge allocates the cost of delivery equitably. Charge may correct cost-price signals in private market. Charge may correct cost-price signals in private market.

Disadvantages: PA 546 Constantine Hadjilambrinos True public goods do not lend themselves to user charges. True public goods do not lend themselves to user charges. Re-distribution objectives may be thwarted. Re-distribution objectives may be thwarted. Charge may be too expensive to collect. Charge may be too expensive to collect. There may be political opposition. There may be political opposition.

PA 546 Constantine Hadjilambrinos Setting prices for user charges is often difficult trial and error. If similar privately provided goods/services, government can set price on basis of price of market If similar privately provided goods/services, government can set price on basis of price of market Cost markup by a certain percentage. Cost markup by a certain percentage. If possible, prices should be set on a unit basis cost should reflect quantity used. If possible, prices should be set on a unit basis cost should reflect quantity used.

Revenue from Public Enterprises (Public Monopolies) PA 546 Constantine Hadjilambrinos Utilities (water, sewer, garbage, electricity/gas, transport) Utilities (water, sewer, garbage, electricity/gas, transport) Liquor stores Liquor stores Lotteries, gambling enterprises (voluntary revenue, but highly regressive) Lotteries, gambling enterprises (voluntary revenue, but highly regressive)