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Chapter 01

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21 views

Chapter 01

Uploaded by

Ropuk Paul 213-024
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Chapter 1

Individuals and
Government
Copyright © 2002 Thomson Learning, Inc.
Thomson Learning™ is a trademark used herein under license.

ALL RIGHTS RESERVED. Instructors of classes adopting PUBLIC FINANCE: A CONTEMPORARY APPLICATION OF THEORY
TO POLICY, Seventh Edition by David N. Hyman as an assigned textbook may reproduce material from this publication for classroom
use or in a secure electronic network environment that prevents downloading or reproducing the copyrighted material. Otherwise, no part
of this work covered by the copyright hereon may be reproduced or used in any form or by any means—graphic, electronic, or
mechanical, including, but not limited to, photocopying, recording, taping, Web distribution, information networks, or information storage
and retrieval systems—without the written permission of the publisher.
Printed in the United States of America
ISBN 0-03-033652-X
Copyright © 2002 by Thomson Learning, Inc.
Government
▪ Governments are organizations formed
to exercise authority over the actions of
persons who live together in a society
and to provide and finance essential
services.

Copyright © 2002 by Thomson Learning, Inc.


Political Institutions
▪ Political Institutions are rules and
generally accepted procedures that
evolve for determining what government
does and how government outlays are
financed.

Copyright © 2002 by Thomson Learning, Inc.


Examples of Political
Institutions

▪ Majority rule
▪ Representative government

Copyright © 2002 by Thomson Learning, Inc.


The Allocation between
Private and Government
Resources
▪ Private
▪ Food
▪ Housing
▪ Cars
▪ Clothing
▪ Government
▪ National Defense
▪ Public Schools
▪ Police

Copyright © 2002 by Thomson Learning, Inc.


Distribution of Government
Goods and Services

▪ Nonmarket rationing:
▪ Prices and willingness to pay those prices
are not applicable to goods such as
national defense.

Copyright © 2002 by Thomson Learning, Inc.


The Mixed Economy Markets
and Politics

▪ Pure Market Economy


▪ Virtually all goods and services are
supplied by for-profit private firms.
▪ Supply and demand determine price.

Copyright © 2002 by Thomson Learning, Inc.


Figure 1.2 Circular Flow in the Mixed Economy
Goods & Services Goods & Services
Output
Market
Dollars Dollars

Income Support
& Subsidies Subsidies
Taxes, fees, charges Taxes, fees, charges
Households Government Services
Government Government Services
Firms

Dollars Input Dollars


Market
Resources Resources
Copyright © 2002 by Thomson Learning, Inc.
Government Expenditures in
the United States

▪ Government purchases of
▪ labor
▪ land
▪ capital

▪ Government Transfer Payments


▪ Welfare
▪ Social Security

Copyright © 2002 by Thomson Learning, Inc.


Structure of Federal
Government Expenditures

▪ Purchases of Goods and Services


▪ Transfer Payments
▪ Grants in Aid to State and Local
Governments
▪ Net Interest Paid

Copyright © 2002 by Thomson Learning, Inc.


The Structure of State and
Local Government Expenditure
in the United States
▪ Education
▪ Civilian Safety
▪ Transportation
▪ Executive, Legislative, and Judicial
▪ Income Security
▪ Health and Hospitals
▪ Recreational and Cultural Activities
Copyright © 2002 by Thomson Learning, Inc.
State and Local Government Expenditure
Recreational and
Cultural Activities
2% Other
7%
Health and
Hospitals
3%

Income Security
5%
Education
42.71%
Executive
Legislative and
Judicial
11%

Transportation
13%

Civilian Safety
Copyright © 2002 by Thomson Learning, Inc. 16%
Financing Government
Expenditures in the US

▪ Taxes:
▪ Income (Corporate and Personal)
▪ Payroll
▪ Excise
▪ Customs

Copyright © 2002 by Thomson Learning, Inc.


How Much Government is
Enough?
▪ The question of how much government
is enough is an important one in any
society. It is the tradeoff between public
and private goods. When government
gets bigger, it comes at the expense of
less private consumption.

Copyright © 2002 by Thomson Learning, Inc.

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