2. What is the Public Sector?
Resources allocated through government
U.S. government allocates about 1/3 of nation’s resources

3. Goals for Studying Public Sector Economics
Explain how government allocates resources
Establish framework to analyze government activities

4. Politics and Economics
Economic activities influence political decisions
Political decisions influence the economy
The importance of the political decision-making process

5. Public Choice or Benevolent Despot?
Government decisions are made collectively in democracies
Political process, not benevolent despot, determines resource allocation
No assurance government will allocate resource efficiently

6. Public Choice or Benevolent Despot?
Market failure does not necessarily imply government intervention
Cannot assume perfect government implementation of “optimal” policy
Magnitude of government failure must be compared to size of market failure

7. The Activities of Government
Government is comprised of thousands of government units
Three levels:
Federal
State
Local
Each level allocates different levels and types of resources

8. The Activities of Government

9. Federal Expenditures Account for half of public sector spending
Three major categories of government spending
National defense
Human resources
Interest

10. Federal Expenditures

11. Federal Expenditures Defense spending has declined since 1950s
Offset by human resource spending

12. Federal Expenditures

13. Federal Deficit and Interest Expenditures
Deficit financed by government bonds
Debt interest substantial part of federal budget
Federal budget/deficit trends as percentage of GDP

14. Federal Deficit and Interest Expenditures

15. Federal Government Revenues
Personal income tax
Social insurance revenues
Corporation income taxes
Excise taxes, estate and gift taxes, customs duties

16. Growth of Government in 20th Century

17. International Comparisons
Difficult to compare government size across countries
U.S. government growth relatively small compared to other countries

18. International Comparisons