1. Public Finance & Budgeting Dr. Adnan A. Alshiha

2. Introduction Public Finance: as field of study is the study of political economy. Public Finance: as field of study is the study of political economy. Economic: examine the working of a market system. Economic: examine the working of a market system. Politics: examine the organization and the process through which social decision are made. Politics: examine the organization and the process through which social decision are made. The two must join in studying the effect of political (collective decision ) on the economy. The two must join in studying the effect of political (collective decision ) on the economy.

3. The study of public finance involve two stages: The study of public finance involve two stages: What government try to accomplish and how efficient are its effort in attaining its objective? What government try to accomplish and how efficient are its effort in attaining its objective? How do institutions organized to carry out collective objectives affect the behavior of individuals in the market economy How do institutions organized to carry out collective objectives affect the behavior of individuals in the market economy

4. Public Economy The no-government economy. The no-government economy. The all-government economy. The all-government economy. Government as an economic unit. Government as an economic unit. Collective goods and services. Collective goods and services.

5. The no-government economy Assume there is no government Assume there is no government The economic organization: consists of two units: The economic organization: consists of two units: individual or families individual or families Business units Business units Trade takes place in two markets: Trade takes place in two markets: Market for consumer or final goods & services Market for consumer or final goods & services Market for productive services Market for productive services

6. The Wheel of Income Business families Final good and services market Factors of production market

7. Economic Organization Private people “trade” Productive services for final products Private people “trade” Productive services for final products Firms buy productive services and transform them into final products Firms buy productive services and transform them into final products Business exist Business exist

8. Principle of consumer Sovereignty One Riyal One Vote One Riyal One Vote Individuals express their desire based on their willingness and ability to purchase. Individuals express their desire based on their willingness and ability to purchase.

9. Advantages of Voluntary Economy Individual are free within the limit of their economic power. Individual are free within the limit of their economic power. High degree of efficiency High degree of efficiency

10. Market Disadvantages Social injustice Social injustice Monopoly Monopoly Instability Instability Prices do not correspond as quickly as the change in individual taste or preference. Prices do not correspond as quickly as the change in individual taste or preference. Complex economic interdependence Complex economic interdependence

11. The All Government Economy Collectivity of choice Collectivity of choice One man One vote One man One vote Collective Consumption Collective Consumption Indivisible goods Indivisible goods Decision is made through political process Decision is made through political process

12. The Potential for trade Individual provided with uniform quantity. Individual provided with uniform quantity. Preferences among individual are different. Preferences among individual are different. If good is Technologically divisible trade occur. If good is Technologically divisible trade occur.

13. Collective Organization and Economic Efficiency Varying preferences can not be expressed. Varying preferences can not be expressed. Low Efficiency. Low Efficiency. Efficiency defined in term of the degree to which individual preferences are satisfied Efficiency defined in term of the degree to which individual preferences are satisfied

14. Collective Organization and Distribution High equality in distribution of goods and services. High equality in distribution of goods and services.

15. The World of Equal Preference are the same. Preference are the same. Ability are the same. Ability are the same. no difference in the working of an economy organized on Market line and one organized on collective line no difference in the working of an economy organized on Market line and one organized on collective line

16. Equal Abilities Differentials Preferences The relative advantages of market over collectivist economic organization become apparent. The relative advantages of market over collectivist economic organization become apparent.

17. Different Ability Equal Preference This provides the strongest support for collectivist organization of the economy. This provides the strongest support for collectivist organization of the economy.

18. Different Ability Different Preference Contrast based on human nature Contrast based on human nature Market advocates: Different ability because in Taste Market advocates: Different ability because in Taste Government advocates : basic differences in capacities of human being to produce economic value. Government advocates : basic differences in capacities of human being to produce economic value.

19. Saudi Arabia Economy Mixed Economy (market- collectivized) Mixed Economy (market- collectivized)