McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved. CHAPTER 1 INTRODUCTION.

Slides:



Advertisements
Similar presentations
Government Spending Daniel Camit Derrik Overton Kevin Phipps Billy Raddell.
Advertisements

Public Ecnomics Dr. HE Chen Teaching Materials(textbook): –Randall G. Holcombe. Public Sector Economics:The Role of Government in The.
Copyright © 2009 Pearson Addison-Wesley. All rights reserved. Chapter 12 The Government Budget, the Public Debt, and Social Security.
Government Spending Economics Chapter 10 Did you know… Between 1962 and 1993, federal transfer payments to people eligible for benefits because of poverty.
1 America’s National Debt. 2 Important Concepts What’s the difference between deficits and debt? Deficits: The annual imbalance between revenues and spending.
1 Fiscal Federalism in Iraq: OIL and GAS. The oil situation: a snapshot.
Macroeconomics What is Macroeconomics? Important Macro Variables What is GDP? Macroeconomic Policy.
McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved. CHAPTER 1 INTRODUCTION.
Chapter 1 - Introduction
INTRODUCTION Chapter 1.
CHAPTER 1 Introduction Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin.
Social Welfare Policymaking
Fiscal Policy, Deficits, and Debt
Fiscal Policy, Deficits, and Debt
TOPIC 4 (supplement) Debt and Deficits (After Exam)
Chapter 7 The Government Sector. Introduction: The Growing Economic Role of Government Most of the growth over the past seven decades was due to the Depression.
Pearson Education, Inc., Longman © 2006 Chapter 13 Economic Policymaking American Government: Policy & Politics, Eighth Edition TANNAHILL.
McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 12 Federal Deficits, Surpluses, and the National Debt.
Fiscal Policy 12 McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
Public Finance Public finance is the field of economics that studies government activities and the alternative means of financing government expenditures.
© 2007 Thomson South-Western. “In this world nothing is certain but death and taxes.”... Benjamin Franklin Taxes paid in Ben Franklin’s.
The U.S. Economy: Private and Public Sectors Chapter 4 McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
Deficit Spending and Public Debt
Copyright McGraw-Hill/Irwin, 2002 Deficits, Surpluses, and Debt The Public Debt Ownership of the Public Debt Substantive Issues The Crowding Out.
Fiscal Policy, Deficits, and Debt 13 McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
Lesson Objectives: By the end of this lesson you will be able to: *Explain the rise of mixed economic systems. *Interpret a circular flow model of a mixed.
Fiscal Policy, Deficits, and Debt 30 McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
Copyright © 2002 by Thomson Learning, Inc. Chapter 12 Budget Balance and Government Debt Copyright © 2002 Thomson Learning, Inc. Thomson Learning™ is a.
Chapter 1: Introduction to Public Finance Chapter 1 Introduction to Public Finance Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights.
Copyright © 2009 Pearson Education, Inc. Publishing as Longman. The Congress, the President, and the Budget: The Politics of Taxing and Spending Chapter.
Government and the Economy Role of Government Money and Banking The Federal Reserve Government Finance.
Economic Policy. The politics of deficit spending The general landscape Deficit: government spending over and above the amount taken in by taxes National.
Financial law as a branch of law Financial law - a set of legal rules governing social relations that arise in the process of formation, distribution and.
© 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Copyright © 2010 Pearson Education Canada. In 2007, the federal government spent 15 cents of each dollar Canadians earned and collected 16 cents of.
© Edco Positive Economics Chapter 23. © Edco Positive Economics How Does the Government Intervene in the Economy? Collect taxes Pay social.
CHAPTER 1 Introduction Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin.
1 Chapter 12 Budget Balance and Government Debt. 2 Budget Terms A Budget Surplus exists when Tax Revenues are greater than expenditures and is the difference.
The Design of the Tax System Chapter 12. “ In this world nothing is certain but death and taxes. ”... Benjamin Franklin Taxes paid.
 Chapter 16 Government Spending. Growth of Government In 1929 only 3 million governme nt workers at all levels Depression causes greater demand for government.
Copyright © 2008 Pearson Addison-Wesley. All rights reserved. Chapter 18 Taxation and Public Expenditure.
Copyright 2008 The McGraw-Hill Companies 4-1 Households as Income Receivers Households as Spenders Business Population Legal Forms of Business The Public.
Chapter 9 Government’s Role in the Economy. What should the govt. provide? What are the characteristics of a free market? What are the characteristics.
Copyright McGraw-Hill/Irwin, 2005 Deficits, Surpluses, and Debt The Public Debt Ownership of the Public Debt Substantive Issues The Crowding Out.
Chapter 13: Government Borrowing Chapter 13 Government Borrowing Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin.
Chapter 16: Government and the Economy. Why Is Government Involved in the Economy? We continue to debate the proper role of the government in dealing.
Copyright © 2014 Cengage Learning ECONOMIC POLICY Chapter Sixteen.
Chapter 1 Why Study Money, Banking, and Financial Markets?
Chapter 17 Taxation, Budgetary Policy, and the National Debt © 2001 South-Western College Publishing.
McGraw-Hill/Irwin Chapter 15: Fiscal Policy, Deficits, and Debt Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
STATE GOVERNMENT REVENUE SOURCES The largest source of state revenue consists of intergovernmental revenue —funds collected by one level of government.
THE FEDERAL BUDGET  10 trillion and counting
Chapter 16 Taxes & Government Spending. The Constitutional Basis for Government Involvement in the Economy The power of the federal government to intervene.
Copyright 2008 The McGraw-Hill Companies 4-1 Households as Income Receivers Households as Spenders Business Population Legal Forms of Business The Public.
INTRODUCTION TO PUBLIC FINANCE IN CANADA
INDEX Sr. No. PARTICULARS 1 INTRODUCTION 2 MEANING 3 SCOPE 4 FUNCTIONS
Chapter 1 - Introduction
Stabilizing the Economy
Public Finance Session1 - Definition.
INTRODUCTION Chapter 1.
Budget Balance and Government Debt
Fiscal Policy: Spending & Taxing
CHAPTER 1 INTRODUCTION.
Chapters
INTRODUCTION Chapter 1.
Taxes, spending, fiscal policy, deficits, surpluses, national debt
Taxes, spending, fiscal policy, deficits, surpluses, national debt
Economics Review Ch. 7, 8, 9 and 10
INTRODUCTION Chapter 1.
Fiscal Policy: Spending & Taxing
Presentation transcript:

McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved. CHAPTER 1 INTRODUCTION

1-2 Defining the Field of Study  “Public Finanace is nothing else than a sophisticated discussion of the relationship between the individual and the estate. There is no better school of training than public finance.” Former Czech Prime Minister, Vaclac Klaus.  This book is about the taxing and spending activities of a government, subject usually called public finance.  Public Finance – the field of economics that analyzes government taxation and spending policies. Therefore, some authors prefer the label: Public Sector Economies or Public Economies.  The resources for all government expenditures ultimately must come from the private sector.

1-3 Public Finance and Ideology  Views of how government should function in the economic sphere are influenced by ideological views concerning the relationship between the individual and the state.  Political philosophers have distinguished two major approaches: 1. Organic view of government 2. Mechanistic view of government

1-4 Organic view of government  Society is a natural organism, each individual is part of the organism, and the government is the heart of the organism.  In an organic view of sociology, individuals are valued only by their contribution to the realization social goals. These goals are determined by the government.  Individuals are important only as part of the society, and the good of the individual is subordinate to the good of society.  Society or community is above the individual. The objectives of a society are set by government.

1-5 Organic view of government  The problem is who is to represent government. Platon: realization of perfect rationality. Hitler: realization of racial purity. Lenin: realization of socialism  Social objectives can be distinguished, and the most important thing is how to choose the objectives of the society.  Still, in spite of the many philosophers, it is not clear what is natural.

1-6 Mechanistic view of government  Government is not an organic part of society. Rather, it is a contrivance created by individuals to better achieve their individual goals.  Government is a contrivance erected to further individual goals. It is not clear how the government can reconcile sometimes conflicting individual goals.  At the centre of attention is the individual, not the group, not the society.  Government exists for the good of the nation, but the problem is what is good and how government should achieve it.

1-7 Mechanistic view of government  Government is trust and state servants are trustees, and trust and trustees have been created for the wellbeing welfare of the nation.  General consensus: it is good for individuals when government protects them from violence, for which reason it must have the power of coercion, otherwise there will be anarchy.

1-8 Continue …  Adam Smith (Wealth of Nations, 1776) “government should protect a society against violence and the assaults of other independent societies… and every member of the society against injustice and oppression from any other member of the society.”  However, J. S. Mill held that “the only reason for which a government should use its power to coerce any member of society against his will is to prevent him injuring others.”  But what is injury to others, and how great must this injury be to justify the use of state coercion?  The minimum that government should provide is protection and the infrastructure necessary for the life of society (lighthouses, roads, bridges, sewers etc.)

1-9 Within mechanical view we distinguish  Within mechanical view we distinguish:  Liberals, libertarians – for a very limited government and against any economic role for government.  Social democrats – for the good of the individual, considerable government intervention is required (benefits to the unemployed, subsidies for shipbuilding...).  There is no hard and fast division, rather a sliding scale of view about the necessary scope of government intervention.

1-10 liberal – what is that  Classic liberals - government is legitimate, but alas it oversteps its boundaries and hence we must be watchful over what government is doing.  Libertarians – government is not a servant of society that sometimes errs, rather it is its enemy.  Classic liberals argue for a limited government, for laissez for laissez faire in combination with a limited but still active government.  American liberals are on the whole into race and gender orientation and abortion, while British liberals are really social democrats.  USA liberals/libertarians – Republicans (Bush and Reagan) versus the democrats (Clinton, Obama) – taxes, redistribution, privatization.

1-11 The View Point of the Book  The mechanistic view of government has come to dominate Anglo-American political thought. However, its dominance is not total.  The tension between society and the individual is inevitable.  The mechanistic view does not by itself provide us with an ideology that tells us whether any particular economic intervention should be undertaken.

1-12 Government at glance  The Legal Framework: Constitution, laws, sub-laws and regulations.  Constitution of Republic of Croatia – entrepreneurial and market freedoms are the basis of the economic organization of the Republic of Croatia.  The government makes sure that all enterprises have equal legal status on the market. The abuse of the monopolistic positions defined by law is forbidden.  Government encourages economic development and the welfare of the local governments and takes care of the economic development of all of its regions.  Rights acquired by the investment of capital cannot be diminished by law or any other legal instrument.

1-13 …continue  Constitutional and statutory restrictions to government spending, deficits and public debt.  Division responsibilities for levy taxes and collect revenue  Statutory defined responsibilities for borrowing (E.g. public debt shouldn't exceed 60% of GDP).  Balanced budget, borrowing only for capital expenditure funding.  Unitary and complex/federal states.

1-14 The role of government  We can be against state intervention as much as we like, but we have to understand the circumstances in which we live.  For several centuries, there has been an ever increasing degree of complexity in legislation, regulations, taxation, public services...  It is in vain to expect any considerable reduction in the role of government, indeed, I am afraid that government intervention and regulation might become much worse (Victoria Curzon-Price on the EU).  In spite of the tempting and logical thesis that government is actually unnecessary and that we might live in either anarchy or spontaneous order, it is hardly worthwhile urging the abolition of government or the state – or indeed of constantly testing out its legitimacy (Friedrich Hayek – The Road to Serfdom).

1-15 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: Government itemizes its expenditure in a document referred to unified budget. Regulatory budget: The cost imposed on the economy by government regulations be published in an annual regulatory budget.

1-16 The size of government  How to measure the size of government? 1. Measurement via annual expenditure 2. Purchase of goods and services 3. Size of transfers (social and subsidy) 4. Payment of interest 5. Expenditure of general government 6. Inflation-adjusted expenditure 7. Government spending per capita 8. Government spending as proportion (%) of GDP

1-17 The size of government  All common measures of the size of government- employees, expenditures, revenues, etc.- involve some deficiency. In particular, these items miss the impact of regulatory costs.  Nevertheless, there is strong evidence that the impact of the government on the allocation of national resources has increased over time.

1-18 The expenditures of government  The expenditures of government can go for: 1. The national defense. 2. Social security. 3. Medicare. 4. Public welfare activities. 5. Payment of interests on debt.  Entitlement Programs: Governmental programs with cost determined not by fixed dollar amounts but by the number of people who qualify.

1-19 The revenues of government  The revenues of government: 1. Tax 2. Loans 3. Changes in real value of debt.

1-20 Changes in the Real Value of Debt  Inflation Tax: When the government is a debtor and the price level increases, changes in the real value of the debt may be an important source of revenue. E.g. increased inflation reduces the real value of your debt. (Read example on P.#14).

1-21 State, Local, and Federal Government Expenditures (selected years) 1234 Total Expenditures (billions) 2005 Dollars (billions)* 2005 Dollars per capita Percent of GDP , % ,2015, % ,7497, % 19901,8732,57410, % 20002,8873,23711, % 20053,876 13, % *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 Adjusting for Inflation Adjusting for Population Relative to Economy

Source: Organization for Economic Cooperation and Development [2006]. Figures are for United States

Source: Economic Report of the President [2006, p. 377]. Note decline in Defense Note increase in Social Security, Medicare and Income Security

Source: Economic Report of the President [2006, p. 383]. Decline in highways Increase in public welfare

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

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

1-27 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

1-28 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

1-29 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 University of Michigan’s Office of Tax Policy Research Urban-Brookings Tax Policy Center