1. The Development of Public Sector Public Finance 4

2. Measures of Governmental Activity Government play two major role: as a referee; and as a producer of public good. The second role which involves the most direct economic impact on individuals.

3. Measures of Governmental Activity Four variables as possible indicators of the direct economic importance of governmental activities: 1-The values of governmental goods and services. 2-The real cost of governmental service. 3-The extent to which collectively made decision replace private or individual decisions. 4-The extent to which resources are organized

4. Measures of Governmental Activity Total Governmental Activity. Governmental Resource Absorption. Government Employment.

5. Reasons for Growth of Public Sector A. War and War Related Expenditure. B. Wagner’s Law of Increasing Public Activity: collective sector of an economy has an inherent reasons increase in size and importance.

6. Justification of Wagner’s Law 1- Income Elasticity of Demand for Public Services. (over certain income range is great than the income elasticity for private goods). 2- Price Elasticity of Demand and Differential Productivity. Productivity grows less rapidly in the public sector. The cost will increase, combined with Low price elasticity will lead to larger share of GDP.

7. Justification of Wagner’s Law 3- Population Growth, External Diseconomies, and Congestion. 4- Collective decision process and provision of public goods. Public services are not divisible and therefore not priced. Payments for public services must be divorced from the receipt of benefits from such services.

8. Reasons for Growth of Public Sector C. Displacement and Scale Effect. Displacement effect: the failure of non defense spending to return to prewar levels in postwar period. Scale Effect: The bureaucracy is increased in both size and in power.