1、Part 2 Analysis of Public Expenditure Chapter 4 Public Goods,Public Goods Defined Pure Public Good A good that is not rival in consumption; the fact that one person benefits from this good doesnt prevent another person from doing the same simultaneously. Characteristics: nonrivalness; nonexcludabili
2、tyNotes:1. Public good need not be valued equally by all. 2. Classification as a public good is not an absolute.Impure Public Good A good that is to some extent rival or excludable.,3. A commodity can satisfy one part of the definition of a public good and not the other. 4. Some things that are not
3、conventional thought of as commodities have public good characteristics. 5. Private goods are not necessarily provided exclusively by the private sector, vice versa. 6. Public provision of a good doesnt necessarily mean that it is also produced by the public sector. Efficient Provision of Public Goo
4、ds 1. Private goods Horizontal Summation The process of creating a market demand curve by summing the quantities demanded by each individual at every price.,2. Public goods Vertical Summation The process of creating an aggregate demand curve for a public good by adding the prices each individual is
5、willing to pay for a given quantity of the good.,3. Problems in Achieving Efficiency a) People may have the incentives to hide their true preferences for a public good. b) Free rider The incentive to let other people pay for a public good while you enjoy the benefits. Perfect Price Discrimination Wh
6、en a producer charges each person the maximum he is willing to pay for the good. 4. The Free Rider Problem,The privatization DebatePrivatization The process of charging ownership or control of an enterprise from the public to the private sector. 1. Public versus Private Provision a) Relative Wage an
7、d Material Costsb) Administrative Costs c) Diversity of Tastes d) Distributional Issues Commodity EgalitarianismThe idea that some commodities ought to be made available to everybody. 2. Public versus Private Production a) Incomplete Contracts ( possible remedies: competitive government procurement;
8、 reputation-building)b) Market Environment,EducationReasons for Public Provision: spring and root of honesty and virtue; enlightening public opinion; commodity egalitarianism.Reasons for Public Produce: establishing democratic processes Free Public Provision and the Amount of Consumption 1. What Do
9、Expenditures for Public Education Accomplish? 1) Relationship between Educational Inputs and Output a) Measurements of inputs: teachers years of experience; teacher/pupil ratio.b) Measurements of output: test scores; attendance records; dropout rates; or continuation rates to higher levels of school
10、ing; labor market outcomes such as unemployment rates and earnings.,2) Discussion about Class Size Reduction 3) Relationship Between High Educational Expenditures and Earnings 2. New Directions for Public Education Two Social Experiments:a) Charter Schools Public schools that operate under governmen
11、t charters that hold them to state standards but have freedom to experiment and some independence in making their spending and hiring decisions. b) Vouchers The basic approach is to provide financial support to students rather than directly to schools. Results; Issues; Objections,Chapter 5 Externali
12、ties,The Nature of Externalities ExternalityAn activity of an entity affects the welfare of another entity in a way that is outside the market. Characteristics of Externalities :1. They can be produced by consumers as well as firms. 2. Externalities are reciprocal in nature. It depends on the costs
13、of alternatives for each activity.3. Externalities can be positive.4. Public goods can be viewed as a special kind of externality.,Graphical Analysis 1. Implications a) In case of externality, private markets cannot produce the socially efficient output level. b) Moving from Q1 to Q* yields a net ga
14、in to society.c) Zero pollution is not socially desirable. 2. Difficulties in identifying and valuing pollution damage a) What Activities Produce Pollutants? b) Which Pollutants Do Harm? c) What Is the Value of Damage Done? 3. ConclusionInvestigating a pollution problem requires a resolutely interdi
15、sciplinary approach and economists tool of marginal analysis.,Private Responses 1. Bargaining and the Coase TheoremFor Bart ChargeMR=MB-MPCFor Lisa ChargeMDAs long as MD MR, there is an opportunity for a bargain.Coase TheoremProvided that transactions costs are negligible, an efficient solution to a
16、n externality problem is achieved as long as someone is assigned property rights, independent of who is assigned those rights.2. Mergers Once the involved parties merger, the externality is internalized. Then the externality would not exist at all.3. Social Conventions moral education,Public Respons
17、es to Externalities 1. Taxes Pigouvian TaxA tax levied on each unit of a polluters output in an amount equal to the marginal damage that it inflicts at the efficient level of pollution. 2. Subsidies A subsidy paid to polluter for each unit of output that he doesnt produce in an amount equal to the m
18、arginal damage that it inflicts at the efficient level of pollution.3. Creating a Market By selling permissions to pollute, the government creates a market for clear environment. 4. Regulation The government simply orders each polluter to reduce pollution by a certain amount or else punishes it.,5.
19、Evaluation1) No perfect job.2) The first three programs use economic incentives, while the last uses coercive orders.3) Most economists prefer market-oriented solutions, which are more efficient and cheaper solutions to pollution problem. The US Responses1. Many examples illustrate the US tendency t
20、o rely on regulation rather than market incentives.2. Market-Oriented Approaches: Sulfur Dioxide Implications for Income Distribution 1. Who Benefits? 2. Who Bears the Costs?,Positive ExternalitiesPositive externalities generally lead to underprovision of an activity, which can be corrected by a Pig
21、ouvian subsidy. 1. A Cautious Notes 1) Every subsidy embodies a redistribution.2) A subsidy is appropriate only if the market doesnt allow the full marginal return.2. Two Examples 1) Owner-Occupied Housing Reasons; Objections2) Higher Education Reasons; Objections,Chapter 6 Political Economy,Politic
22、al EconomyThe field that applies economic principles to the analysis of political decision making. Direct Democracy 1. Unanimity Rules Lindahl PricesThe tax share an individual must pay per unit of public good.Equilibrium is a set of Lindahl prices at which each person votes for the same quantity of
23、 the public good. 2. Majority Voting RulesMajority Voting RulesOne more than half of the voters must favor a measure for it to be approved.,Voting Paradox With majority voting, community preferences can be inconsistent even though each individuals preferences are consistent. Agenda ManipulationThe p
24、rocess of organizing the order in which votes are taken to assure a favorable outcome. CyclingWhen paired majority voting on more than two possibilities goes on indefinitely without a conclusion ever being reached.PeakA point on the graph of an individuals preferences at which all the neighboring po
25、ints have lower utility.Single-Peaked PreferencesUtility consistently falls as a voter moves away from his most preferred outcome.Double-Peaked PreferencesIf, as a voter moves away from his most preferred outcome, utility goes down, but then goes back up again.Emerge when there are private substitut
26、es for a publicly provided good or issues cant be ranked along a single dimension.,The Medium VoterThe voter whose preferences lie in the middle of the set of all voters preferences; half the voters want more of the item selected and half want less. The Medium Voter TheoremAs long as all preferences
27、 are single-peaked and several other conditions are satisfied, the outcome of majority voting reflects the preferences of the medium voter. 3. LogrollingLogrollingThe trading of votes to obtain passage of a package of legislative proposals.Proponents; Opponents4. Arrows Impossibility TheoremArrows I
28、mpossibility TheoremIt is impossible to translate individual preferences into collective preferences without violating at least one of a specified list of ethically reasonable conditions.,Representative Democracy1. Elected PoliticiansA vote-maximizing politician adopts the preferred program of the m
29、edian voter under following situations:1) Single-Dimensional Rankings 2) Ideology3) Personality4) Leadership5) Decision to Vote2. Public EmployeesNiskanens model of bureaucracy 3. Special Interests 1) Source of Income: Capital or labor2) Size of Income3) Source of Income: Industry of Employment4) Re
30、gion5) Demographic and personal characteristics,Rent-SeekingUsing the government to obtain higher than normal returns(“rents”). CartelAn arrangement under which suppliers band together to restrict output and raise price. Deadweight LossA pure waste with no accompanying gain. 4. Other Actors 1) Judic
31、iary2) Journalist3) Experts,Explaining Government Growth,1. Prominent Theories1) Citizen Preferences G=f (P, I) Wagners LawThe hypothesis that government expenditures raise faster than incomes.2) Marxist View3) Chance Events 4) Changes in Social Attitudes 5) Income Redistribution 2. Controlling Gove
32、rnment Growth 1) Change Bureaucratic Incentives2) Change Fiscal Institutions 3) Institute Constitutional Limitations 3. Conclusions,A,B,家庭百分比 (100%),收入百分比 (100%),基尼系数一般取值在0.20.6之间，小于0.2，说明收入分配绝对公平；0.20.3，比较公平；0.30.4，较为合理；0.40.5，差距较大；大于0.5，差距悬殊。,洛伦兹曲线（Lorenz Curve）,Chapter 7 Income Redistribution: Co
33、nceptual Issues,Distribution of Income in US Poverty LineA fixed level of real income considered enough to provide a minimally adequate standard of living.Interpreting Distribution Data1. Census Income Consists Only of the Familys Cash ReceiptsIncomeThe sum of the amount consumed during a given peri
34、od and the amount saved. In-Kind TransfersPayments from the government to individuals in the form of commodities or services rather than cash. 2. The Official Figures Ignore Taxes 3. Income Is Measured Annually 4. There Are Problems in Defining the Unit of Observation,Rationales for Income Redistrib
35、ution1. Simple UtilitarianismUtilitarian Social Welfare FunctionAn equation stating that social welfare is some function of individuals utilities.W=F (U1, U2 , Un) Additive Social Welfare FunctionAn equation defining social welfare as the sum of individuals utilities. W=U1+U2 + +Un Assumptions: 1) i
36、dentical utility functions that depend only on their incomes; 2) diminishing marginal utility of income; 3) fixed total amount of income.Limitations of assumptions2. The Maximin CriterionMaximin CriterionSocial welfare depends on the utility of the individual who has the minimum utility in the socie
37、ty.W= min (U1, U2 , Un),Original PositionAn imaginary situation in which people have no knowledge of what their economic status in society will be.3. Pareto Efficient Income RedistributionIf high-income individuals are altruistic, redistribution can actually be a Pareto improvement. 4. Nonindividual
38、istic ViewFor some people, inequality per se is undesirable. 5. Other Considerations 1) Process versus Outcomes2) Mobility 3) Corruption Expenditure Incidence Expenditure IncidenceThe impact of government expenditures on the distribution of real income.,1. Relative Prices Effects A government progra
39、m can change relative prices, creating losses and gains for various individuals. 2. Public Goods How expenditures on public goods affects real incomes depends on the assumptions. 3. Valuing In-Kind Transfers Whether an in-kind transfer is valued less than a direct income transfer depends on empirica
40、l work. 4. Reasons for In-Kind Transfers 1) Commodity egalitarianism2) Administrative feasibility3) Political attractiveness,Chapter 8 Expenditure Programs for the Poor,A Quick Look at Welfare SpendingMeans-TestedA spending program whose benefits flow only to those whose financial resources fall bel
41、ow a certain level. TANFNo entitlementTime limits (no more than 5 years)Work requirementBlock grants to statesBenefit reduction rates Income Maintenance and Work Incentives 1. The Basic Trade-offsB = G t E,2. Analysis of Work Incentives The ultimate work decision depends on the shapes of indifferenc
42、e curves. 3. Work RequirementsWorkfareAble-bodied individuals who qualify for income support receive it only if they agree to participate in a work-related activity.4. Time Limits5. Family Structure 6. National versus State Administration The Earned Income Tax Credit (EITC) cash transfers; refundabl
43、e; phase-out arrangement Medicaid Crowding OutThe phenomenon that public insurance crowds out private insurance.,Overview How to evaluate the welfare system? 1. Impacts on poverty rates 2. Impacts on work incentives 3. Administrative costs 4. Adequate support 5. Spiritual factors,Chapter 9 Social In
44、surance: Social Security and Unemployment Insurance,Social InsuranceGovernment programs that allow individuals to smooth their consumption in the presence of uncertainty.Participation is compulsoryEligibility and benefit levels are related to past contributions Benefit payments begin with some ident
45、ifiable occurrence The programs are not mean-tested Why Have Social Insurance1. Adverse SelectionAdverse SelectionThe situation that occurs when the people who are most likely to receive benefits from a certain type of insurance are the ones who are most likely to purchase it.,AnnuityA sum of money
46、payable yearly or at some other regular interval. 2. Other Justifications1) Lack of Foresight 2) Moral Hazard 3) Economize on Decision-Making Costs4) Income Redistribution Structure of Social Security 1. Basic components 1) Pay-As-You-Go FinancingFully FundedA pension system in which an individuals
47、benefits are paid out of deposits which have been made during his or her working life, plus accumulated interest. Pay-As-You-GoA Social Security system under which benefits paid to current retirees are come from payments made by current workers.,2) Explicit Transfers 3) Benefit StructureAverage Inde
48、xed Monthly Earnings(AIME)The average wages in covered employment over the length of an individuals working life, which is used in the computation of an individuals SS benefit.Primary Insurance Amount(PIA)The basic SS benefit payable to a worker who retires at age 65 or who becomes disabled.Other Fa
49、ctors: Age at which benefit is drawn Recipients family status Tax Benefits are corrected for inflation Other earningsearning test4) Financingpayroll tax,2. Distributional IssuesSS redistributes income not only across generations, but also within generations. 3. The Trust FundSS Trust FundA fund in which SS payroll taxes are accumulated for the purpose of paying out benefits in the future.4. Economic Status of the Aged Effects on Economic Behavior 1. Saving Behavior1) Wealth Substitution Effect2) Retirement Effect 3) Bequest Effect 2. Retirement Decision,
