《公共部门经济学》（双语教学）课程教学大纲

《公共部门经济学》（双语教学）课程教学大纲 Chapter 1 Individuals and Government

SUMMARY：Economics of the Public Sector is the field of economics that studies government activities. Modern Economics of the Public Sector emphasizes the relationships between citizens and government. This chapter discusses some issues as follows: individual, society and government; the allocation of resources between government and private sector; the mixed economy, market and politics; government expenditures in the United States.

1. Individuals, Society and Government a. Public finance is the field of economics that studies government activities and the alternative means of financing government expenditures. b. 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.

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

d. Examples of Political Institutions:

Majority rule; Representative government

2. The Allocation between Private and Government Resources a. Private: b. Government:

c. A Production-Possibility Frontier

d. Distribution of Government Goods and Services 3. The Mixed Economy: Markets and Politics a. Pure Market Economy b. Mixed Economy

4. Government Expenditures in the United States

a. Government purchases

b. Government Transfer Payments

c. Structure of Federal Government Expenditures

d. The Structure of State and Local Government Expenditures in the United States

5. Financing Government Expenditures in the US a. Taxes:

b. State Budget Crunch of 2002 c. Causes

a) Cuts in taxes on business and individuals in the 1990s b) No sales tax collections on services c) Growth in costs of Medicaid

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d. Implications of a Graying America Social Security a) In 2008 baby-boomers start to retire and collect b) The ratio of workers to retiree falls e. Medicare

Health care inflation is substantially higher than overall inflation f. Medicaid

Increased use of long-term care for baby-boomers 6. 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, its increased involvement comes at the expense of less private consumption.

Questions for review：

1. How does the mechanism for distributing and rationing most government services differ from that for distributing goods through markets?

2. What is a production-possibility curve? Show how such a curve can be used to explain how private goods and services must be sacrificed to obtain government goods and services.

3. Discuss the trends in government expenditures and outlays as a percentage of GDP.

Chapter 2 Efficiency, Markets, and Governments

SUMMARY：Resources are efficiently allocated when the well-being of any one person cannot be increased without harming another. This condition is attained when all goods are consumed over any period up to the point at which the marginal social benefit of each good equals its marginal social cost. When prices in competitive markets reflect marginal social costs and benefits, market exchange achieves efficiency. Individuals opposing actions that improve efficiency act rationally. They are simply better of with a larger share of a smaller pie. To predict outcomes any political process, it is necessary to know the benefits of any changes proposed, to whom they accrue, and what changes in the distribution of income result.

1. Positive and Normative Economics Positive Economics explains “what is,” without making judgments about the appropriateness of “what is.”

Normative Economics: designed to formulate recommendations about what “should be.”

2. Normative Evaluation of Resource Use: The Efficiency Criterion a. Pareto Optimality

b. Marginal Conditions for Efficiency

Total Social Benefit; Total Social Cost

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Net Benefit = TSB – TSC

Maximum Net Benefit occurs where MSB = MSC

3. Conditions under which the Market is Pareto Optimal a. A perfectly competitive market system exists if: a) All productive resources are privately owned.

b) All transactions take place in markets, and in each separate market many competing sellers offer a standardized product to many competing buyers. c) Economic power is dispersed in the sense that no buyers or sellers alone can influence prices.

d) All relevant information is freely available to buyers and sellers. e) Resources are mobile and may be freely employed in any enterprise. b. If These Conditions are Met P = MPB = MSB and P = MPC = MSC So P = MSB = MSC

c. When Does Market Interaction Fail to Achieve Efficiency?

4. Market Failure: A Preview of the Basis for Government Activity a. Government intervention may be warranted if a market exhibits: Monopoly power by one supplier

Effects of market transactions on third parties

Lack of a market for a good where MSB>MSC (i.e. a public good) Incomplete information about goods being sold

An unstable market

b. The Tax System and the Birth Rate

Families with children pay less tax than families without children: personal exemption; child tax credit.

Historical data shows that an increase in the real value of the personal exemption is associated with increases in the birth rate. 5. Equity vs. Efficiency Horizontal equity Vertical equity

6. Positive Analysis on Trade-off Between Equity and Efficiency a. Introduction

b. Compensation Criteria

c. International View: Agricultural Subsidies, International Trade Restrictions and Global Efficiency

Many nations subsidize farmers with: Production subsidies; Export subsidies; Import constraints.

This results in reduced agricultural efficiency.

Since WTO agreements, such subsidies and import constraints have been reduced.

Questions for review：

1. How does trading improve efficiency? Why are trades that apparently provide

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mutual gains to those involved not undertaken?

2. Show how equating the total social benefit of a good with its total social cost will result in more than the efficient output of the good.

3. Efficiency can correspond to more than one distribution of well-being. Can the efficiency criterion be used to rank one distribution over another?

Chapter 3 Externalities and Government Policy

SUMMARY：Externality are costs or benefits of market transactions not reflected in prices. They are a dominant form of market failure to achieve efficiency in industrial economies. When the marginal external cost or benefit is priced so that buyers and sellers consider it in their decisions, an externality is internalized. To internalize an externality, the parties involved must be identified and the marginal external cost or benefit must be measured.The Coase theorem shows that, government assignment of rights to resource use, along with facilitation of free exchange of those rights, achieves efficiency, independent of which party is granted the right. When larger numbers of individuals are involved, a solution will require collective action to internalize the externality. Among the techniques used for this are corrective taxes and subsidies, regulations, and the establishment of standards.

1. Externalities

a. Externalities are costs or benefits of market transactions not reflected in prices.

Negative externalities are costs to third parties. Positive externalities are benefits to third parties . b. Externalities and Efficiency Social Costs

Market equilibrium conditions Efficiency Requirements c. Positive externalities Social Benefit

2. Internalization of Externalities

An externality can be internalized under policies that force market participants to account for the costs of benefits of their actions. a. Corrective Taxes to Negative Externalities

The tax revenue is sufficient to pay costs to third parties. Socially optimal levels of production are achieved. b. Using a Corrective Tax

The greenhouse effect and a “Carbon Tax” c. Theory of the Second Best d. A Polluting Monopolist e. Corrective Subsidies 3. Coase's Theorem

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a. The Definition and Significance of Coase’s Theorem

The efficient mix of output will result simply as a consequence of the

establishment of exchangeable property rights. It makes no difference which party is assigned the right to use a resource.

If the transactions costs of exchanging the rights are zero, the efficient mix of outputs among competing uses of the resource will emerge. b. Limitations of Coase’s Theorem

Transactions costs are not zero in many situations.

However you allocate the property rights, the distribution of income is affected.

c. Application of Coase's Theorem

The Clean Air Act of 1990 allows for the sale of the \Firms face a tradeoff when they pollute. If they pollute, they forgo the right to sell their emission permits to others.

In markets for electricity, Clean Air Act has motivated firms to shift to natural gas and away from coal as a means of producing electricity. 4. Recycling

a) Collecting waste for recycling costs three times as much as collecting it for disposal.

b) Rural land is inexpensive.

c) Recycling paper creates more water pollution and does not “save” trees; it simply reduces the number that are planted. 5. Regulatory Solutions

Instead of using market forces to force firms to internalize externalities, we can use emission standards and apply these to all market players. a. Markets for Pollution Rights b. Global Externalities:

c. Costs and Benefits to the EPA

Questions for review：

1. Explain why externalities prevent the attainment of efficiency when goods are traded in competitive markets.

2. How can a corrective tax adjust costs to reflect externalities? What effects will a corrective tax have on prices, output, and pollution?

3. Under what conditions are externalities likely to be internalized without the necessity of government intervention?

Chapter 4 Public Goods

SUMMARY：A pure public good is one that is consumed by all members of a community as soon as it is produced for any one member. Its benefits are nonrival and nonexcludable to consumers. Efficiency requires that the production of pure public goods be undertaken to the point where the sum of marginal private benefits is exactly equal to the marginal social cost of production.

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Ideally, an efficient output of a pure public good could be achieved if each person contributed an amount equal to the marginal benefits received per unit of a public good. This is known as the Lindahl equilibrium. However, problems in inducing households to reveal their true preferences for public goods resulting from free-rider effects make this solution difficult to implement.

1. Public Goods

a. Public Goods are goods for which exclusion is impossible. b. Characteristics of Public Goods Nonexclusion Nonrivalry

c. Pure Public Goods and Pure Private Goods Pure Public Good:. Pure Private Good:

d. Marginal Costs for Provision of Public Goods The marginal cost of allowing another person to benefit from a pure public good is zero, while the marginal cost of providing a greater level of public good is positive.

2. Provision of Private Good and Public Goods: Markets and Government a. Price Excludable Public Goods vs Congestible Public Goods a) Price Excludable Public Goods (Excludability, but no rivalry) b) Congestible Public Goods (Rivalry but no excludability) b. Education as a Public Good a) External benefits:

It helps us live in a civil society. It has a “socializing ” function. It teaches the importance of following rules, obeying orders, and working together.

It provides students with basic skills like punctuality and the ability to follow directions that increase their productivity as workers. It helps students identify their abilities and choose appropriate occupations, thereby increasing productivity levels for a nation. b) Education as a Private Good

Education has characteristics of a private good: 3. Demand For a Pure Public Good

Decisions of Market demand for a Pure Private Good Efficient Output of a Pure Public Good

Lindahl Pricing: Everyone in a group cooperates and participants each pay their marginal benefit. Lindahl Equilibrium 4. Free-rider Free-rider occurs when people are not honest in stating their Marginal Benefit, because if they understate it, they can get a slightly reduced level of the public good while paying nothing for it.

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5. Illustrating Voluntary Contributions to a Public Good: The Gulf War

Under the premise that defeating Iraq in the Gulf War in 1990 was a public good to be consumed by the industrialized economies and Arab nations, each nation was expected to contribute. 6. National Defense and Homeland Security a. Defense

b. Homeland Security The new department merged several agencies from the departments of Justice, Transportation, Treasury, Agriculture, Energy, Health and Human Services, and Commerce.

Questions for review：

1. What are the essential differences between pure public goods and pure private goods?

2. Although the marginal cost of producing a pure public good is always positive, some consumers can enjoy the benefits of pure public goods at zero marginal costs. Explain the apparent paradox, if there is one!

3. How will shares in the finance of public goods vary among contributors in a model of voluntary cooperative supply of such goods?

Chapter 5 Public Choice and the Political Process

SUMMARY：A political equilibrium is an agreement on the level of production of one or more public goods, given a specified rule for making the public choice and the distribution of tax shares among individuals. Collective, or public, choices are agreements resulting in political equilibria on issues of common concern. Political equilibria are influenced by politicians and bureaucrats. When all voters have single-peaked preferences, parties will tend to move to the median position to win elections.

When all voters do not vote, the median most-preferred outcome of all citizens could differ from the median most-preferred outcome of all voters. Logrolling is the explicit trading of votes on issues of great interest to voters. When two or more issues are voted on simultaneously, implicit logrolling can occur. Models of bureaucratic behavior presume that bureaucrats attempt to maximize the size of their budgets.

1. The Supply of Public Goods Through Political Institutions

Public Choice involves decisions being made through political interaction of many persons according to pre-established rules.

2. Political Equilibrium

a. Tax Shares or Tax Prices b. Individual's Choice

c. The Choice to Vote or Not

d. Determinants of Political Equilibrium

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3. Median Voter Model

Concept of Median Voter Model

Implications of Median Voter Model 4. Political Externalities Definition

Political Transactions Costs 5. Preferences

a) Single-peaked preferences b) Multi-peaked preferences 6. Pairwise Cycling

a. Arrow's Impossibility Theorem

b. Conditions of Arrow’s Impossibility Theorem 7. Political Processes

Constitutions; Minority Rule; Majority Rule a. Costs and Benefits of Collective Action Benefit Cost

b. Possible Alternatives Methods Unanimity

Plurality rule (more than 3 outcomes possible)

Point-count voting (enables voters to register the intensity of their preference)

Instant Runoffs

8. Political Institutions in U.S. Cities

a. In the United States, municipal government takes two basic forms.

b. Researchers have found that relative to cities run by managers, those run by elected mayors:

a) Have greater capital stock (roads, parks, police and fire stations), b) Use relatively less labor in providing public services, c) Spend the same amount of money.

c. Forms of City Government and their Effects on Spending a) Manager/Council Government

Unelected city manager makes most executive decisions, with policy recommendations by elected city council. b) Mayoral Government c) Results:

9. Logrolling or Vote Trading

Logrolling is the act of voting for something you would ordinarily vote against so that someone else will vote for something that they would ordinarily vote against. a. Implicit Logrolling

b. State Government Spending and the size of the Legislature 10. Special Interests

Special Interests are groups that lobby on particular issues.

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11. Bureaucracy and the Supply of Public Output

Officials measure their power in terms of the size of their budgets, not the efficiency of the outcomes they generate. This causes bureaucrats to have a self-interest in inefficiently high levels of government spending.

Questions for review：

1. How does a person decide to vote on any issue that proposes to change the amount of public goods supplied by the government?

2. Given tax shares, explain why only the median voter consumes his most-preferred quantity of a public good under majority rule.

3. Under what conditions will the median peak correspond to an extreme outcome, such as no output of a good?

4. What is logrolling? Under what conditions is logrolling likely to emerge? How can logrolling prevent the attainment of efficiency?

A exercise of speech：

Imitation of president or finance minister

Chapter 6 Introduction to Government Finance

SUMMARY： Government finance transfers use of productive resources from individuals and business firms to the government. Taxes are the major method of government finance. The method of government finance used can have an impact on political and market equilibria and on the efficiency with which resources are employed in the private sector.

A basic problem in government finance is the distribution of the costs of financing public goods among citizens. No one best way of accomplishing this exists that will satisfy all citizens. In addition to affecting the political equilibrium, the method of government finance chosen often has significant and complicated effects on the private choices made by citizens.

1. Federal, State, and Local Revenue a. Size b. Sources: a) Taxes: b) Fees c) Tuition d) Licenses

2. Purpose and Consequences of Government Finance a. Political Equilibrium

b. Market Equilibrium and Its Efficiency c. The Distribution of Income 3. Taxes

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a. Tax Base

b. Tax Rate Structure a) Marginal Tax Rate

The amount by which the tax increases when the tax base increases b) Average Tax Rate

The total amount of tax divided by the total amount of the tax base c) Tax bracket

The range of the tax base in which the marginal rate is constant d) Descriptors of the Tax Rate Structure

A Progressive Tax A Proportional Tax A Regressive Tax

e) Average Tax Rates in the US

4. How Should the Burden of Government Be Financed? a. Benefit Principle

b. Ability-to-Pay Principle

5. Criteria for Evaluating Methods of Government Finance a. The Criteria are: a) Equity b) Efficiency

c) Administrative ease

b. Horizontal and Vertical Equity Horizontal equity Vertical equity

c. Both concepts are subjective. a) “Economic capacity” b) “Ability to pay”

d. Tax Compliance, Avoidance and Evasion Tax Evasion Tax Avoidance

6. Alternatives to Taxation

a. Debt Finance is the means of financing expenditures by issuing bonds. b. Inflationary Finance is the means of financing expenditures through the printing of money.

c. More alternatives to Taxation a) Donations b) User Charges c) Earmarked Taxes

d. User Charges and the Transportation Infrastructure e. User Charges and Efficiency 7. Government Enterprise Local Utilities 8. Lotteries

State Lotteries

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State Lotteries account for more than 3% of state revenues.

Lotteries pay out a smaller portion of revenue to winners than other forms of gaming (horse racing, casinos, etc.).

Questions for review：

1. How does government finance affect both political and market equilibria? 2. What is the difference between horizontal equity and vertical equity? 3. How can inflation be viewed as a form of taxation?

4. What criteria can be used to price the output of government enterprises?

Chapter 7 Taxation, Prices, Efficiency, and the Distribution

of Income

SUMMARY：Taxes can affect prices of outputs and inputs, causing losses in efficiency by preventing prices from accurately reflecting social costs and benefits of goods and services. Price-distorting taxes induce individuals to take actions with lower social value than they would choose if no such tax existed. Lump-sum taxes result only in income or wealth reductions; they do not cause losses in the efficiency with which private resources are used.

The burden of paying a tax can be shifted from people who are liable for the tax to other groups. This occurs when prices change as a result of a tax. A multimarket analysis of incidence considers the effect of tax-induced resource flows on the prices of inputs and outputs in markets other than those directly taxed. Data on income shares by income class can be tabulated with a Lorenz curve, which plots the percentage of households ranked according to income against their share of income.

1. Lump-Sum Taxes

A Lump-sum tax is a fixed tax that is owed by everyone and is not subject to anything taxpayers can change.

It is independent of income, consumption, or wealth. An example is a Head Tax, which is constant for everyone. Inefficiency in Taxation and the Lump-Sum Tax 2. Price -Distorted Taxes

a. Individual Excess Burden of a Tax

The individual excess burden of a tax is the loss in well-being when a taxpayer pays taxes under a price-distorting tax instead of under a lump-sum tax.

b. Community Charges in the U.K.

The Thatcher government replaced local property taxes with a form of lump-sum tax called “the community charge.’’ unfairness c. Unit Taxes

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A unit tax adds to the price by a fixed amount. Examples include the 32 cents per pack of cigarettes and 24 cents per gallon of gasoline in federal taxes. d. Tax Terms

The Gross Price (PG) The Net Price (PN)

e. Excess Burden of a Unit Tax f. Efficiency Loss Ratio of a Tax

the deadweight loss per dollar of revenue raised DWL/R . 3. Incidence of a Tax The Legal Incidence. The Economic Incidence a. Shifting of Taxes Forward Shifting Backward Shifting b. Ad-Valorem Taxes

c. Using Excise Taxes on Alcohol to Internalize Externalities d. Independence of Legal and Economic Incidence 4. General Equilibrium Analysis and Shifting

When one good is taxed and another good is not taxed, the impact of the tax is not confined to the taxed good.

This has the effect of equalizing the after-tax rate-of-return. Government Taxes and Expenditures and the Distribution of Income The Tax Incidence

The Expenditure Incidence

The Differential Tax Incidence 5. The Lorenz Curve

The Lorenz Curve maps the cumulative percentage of households against their cumulative percentage of income. The Gini Coefficient

Questions for review：

1. Why are most taxes likely to cause losses in efficiency? Be sure to relate your answer to the impact of taxes on prices.

2. Why should the excess burden of taxation be added to revenue collected from taxes in order to accurately measure the opportunity costs of government-supplied goods and services?

3. Under what circumstances does a single-market analysis of tax incidence give a good approximation of the multimarket incidence?

4. What is a Gini coefficient? How can this coefficient be used to determine the impact of taxes on income distribution?

Chapter 8 Budget Balance and Government Debt

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SUMMARY：A budget deficit or surplus reflects an imbalance between expenditures and revenues. Deficits increase the federal debt and also can contribute to higher market interest rates and increased inflation. Borrowing to finance public expenditures postpones the tax burden to the future. The federal debt is largely internal in the sense that it is owed mainly to U.S. citizens and institutions. Repayment of the federal debt does not imply a significant drain of either capital or productive opportunities out of the nation.

State and local debt holdings are likely to be more external to the issuing jurisdiction than are federal debt holdings, implying that repayment of such debt might withdraw significant amounts of resources to other jurisdiction. The burden of the government debt can be defined as the decrease in well-being of citizens who are taxed to pay off the principal and interest on past debt.

1. Budget Terms A Budget Surplus A Budget Deficit The National Debt Nominal figures

a. High-Employment Deficit or Surplus

The budget balance is altered significantly by the state of the economy. The high-employment deficit or surplus is what the surplus would be if unemployment were low. b. Measuring Budget Balance On Budget vs Off Budget

Social Security and the Post Office are run off budget. c. Unified Budget

The Unified Budget is the sum of the on- and off-budget deficits and surpluses. a net deficit a net surplus

d. National Income and Product Accounts Budget e. Real Surpluses and Deficits

2. Economic Effects of Federal Budget Deficits a. Ricardian Equivalence

b. Economic Effects of Federal Budget Surpluses

c. Budget Balance, National Saving, and Economic Growth d. Incidence of Deficit Finance

Lower growth rates.

3. The Government Debt

a. January 2003, Federal Debt $6.4 trillion, State and Local Debt $1 trillion b. Net Federal Debt

c. Internal and External Debt The Internal Debt

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The External Debt

4. State and Local Borrowing

a. General Obligation vs Revenue Bonds General Obligation Bonds Revenue Bonds

b. Social Security and the Deficit Social Security Surpluses 5. Burden of the Debt

a. Impact on future generations:

b. Financing Capital by State and Local Governments Capital expenditures The benefit principle

6. National Saving and Government Budget Balance National saving in the United States remains low by international standards. A compelling argument in favor of running a budget surplus

Questions for review

1. Explain why a budget deficit in a given year when the unemployment rate is 10 percent could be, in fact, a surplus in that year if the unemployment rate werw 5 percent.

2. What is the significance of the distinction between internal debt and external debt?

3. In what sense does repayment of the federal debt constitute a redistribution of income among citizens?

4. How can deficit finance influence political equilibrium? Has deficit finance been associated with increased federal investment in the United States?

Chapter 9 The Theory of Income Taxation

SUMMARY：Income is viewed by many as an appropriate index of ability to pay taxes. For tax purposes, income is usually measured as an annual flow of earnings. The economist’s definition of income is, however, an annual accretion of purchasing power. This is known as comprehensive income and is measured as the sum of annual consumption and increased net worth.

A general tax on comprehensive income would tax all income at the same rate regardless of its source or use. The tax on comprehensive income causes wages, as seen by employers and employees, to diverge. This results in an efficiency loss in labor markets. Taxation of interest income causes the interest rate paid by investors to diverge from that received by savers. The result is a loss in efficiency in markets for loanable funds used to finance investment and accumulation of assets.

1. Income Taxes

introduced as an emergency measure during the U.S. Civil War.

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An 1894 attempt to introduce a regular income tax was declared unconstitutional.

In 1913, the 16th Amendment to the U.S. Constitution allowed for personal and business income taxes.

The First Regular US Income Tax

The initial income tax exempted the first $3,000 for singles and the first $4,000 for married couples.

It imposed a 1% rate on income up to $20,000 and higher rates at higher levels of income.

2. Comprehensive Income: The Haig-Simons Definition

“the exercise of control over the use of society’s scarce resources.” a. Implications of the Haig-Simons Definition b. Capital Gains

the increased value of assets that a person holds. Realized and Unrealized Capital Gains Realized Capital Gains Unrealized Capital Gains c. An Income Statement

a) Sources of Funds:

Earnings from Sale of Productive Services Transfer Payments Received Capital Gains (or Losses) b) Uses of Funds: Consumption Taxes Donations Gifts Saving

Sources = Uses

d. Modifications to the Income Definition

The cost of acquiring income needs to be accounted for in the definition. Earnings + Transfer Payments + Net Capital Gains – Cost of Acquiring Income =

Consumption + Taxes + Donations + Gifts + Saving – Cost of Acquiring Income Problems with Measuring Income using the Haig-Simons Definition

How to measure unrealized capital gains on assets that are not regularly traded?

e. In-Kind Income in Haig-Simons Definition f. Home Production g. The Home Itself

housing services is income.

h. The Impracticality of Taxing In-Kind Income, Home Production, and Imputed Rent

3. A General Tax on Comprehensive Income

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Suppose there is a flat-rate income tax on all income. What are the effects on the labor-leisure trade-off and the savings decision? a. Income and Substitution Effects of a Tax on Labor Income b. Treatment of Capital Gains

4. Labor Market Analysis of Income Taxation: Perfectly Inelastic Supply excess burden from a tax on labor income. compensated labor supply curve

5. Labor Market Analysis of Income Taxation: Wage responsive Labor Supply the regular labor supply curve is not perfectly inelastic a. Empirical Analysis

Regular labor supply is perfectly inelastic for men 25 to 55. A large substitution effect

b. Lower Tax Rates, More Work, Less Excess Burden c. Incidence of Payroll Taxes

6. Taxation of Interest Income and the Effect on Saving a. Excess Burden of a Tax on Interest Income b. Empirical Estimates

c. Supply-Side Tax Cuts of the 1980s

cuts in tax rates would increase overall revenues because the cuts would motivate harder work and greater investment.

Questions for review

1. What is comprehensive income, and how is it related to an individual’s command over resources? Explain how income can be measured from either the sources or the uses side.

2. How does a proportional income tax introduce a wedge between the gross wage paid by employers and the net wage received by workers? Explain how this tax wedge results in efficiency losses in labor markets.

3. Why must the substitution effect be separated from the income effect of tax-induced wage reductions to measure the excess burden of a comprehensive tax on labor income? Draw a graph that shows how the excess burden of the tax can be measured.

4. How does a tax on interest income influence a person’s willingness to save? Can the impact of the tax on saving be unequivocally predicted from theory? Explain why or why not.

Chapter 10 Fiscal Federalism and State and Local

Government Finance

SUMMARY：A federal system of government allows both centralized and decentralized collective choices. The more decentralized the government, the greater the opportunity to supply diverse levels and kinds of government-provided services. Stabilization and income redistribution are two functions that have national collective benefits and are most effectively supplied by central government.

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Pairing government-supplied services with political jurisdictions is a central problem of fiscal federalism. Citizen mobility allows individuals of similar tastes to congregate for the purpose of supplying government-provided services and sharing the costs of such services. Interjurisdictional externalities are caused by improper size of political jurisdictions. Fiscal capacity is used as a basis of support for federal grants to equalize the capacity to finance basic public services among communities.

1. Levels of Government Federal State

County (called a Parish in Louisiana) School, Water, Fire, Sanitation District City, Town, Village 2. Grants-in-Aid

3. Fiscal Federalism

the structure of the levels of governments in which each level has sources of revenues and economic or fiscal responsibilities. a. Local Public Goods Definition Examples:

b. Provision of Local Public Goods

The benefit of providing local public goods The problem with providing local public goods 4. Centralized vs Decentralized Decisions An important problem for a society equity vs efficiency

5. Mobility between Jurisdictions: Voting with Your Feet Mobility

Tiebout model

6. The Global Economy and Federalism a. European Union (EU): integrated economies.

Eliminated border and customs controls between member nations. Replaced individual currencies with the Euro b. The U.S.

Infrastructure and education have increasingly become the responsibility of state and local government.

Tax competition among states often limits their ability to raise revenue c. Inter-jurisdictional Externalities Costs or benefits externality

7. The Theory of Taxation with a Decentralized System a. Tax Base

b. Tax Competition and Tax Exporting 8. Fiscal Capacity

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A measure of a jurisdiction’s ability to raise revenue. a. Possible Measures Per capita income

Per capita retail sales

Per capita assessed valuation b. Revenue Effort

A measurement of the ratio of the tax collections from all sources in a jurisdiction to its per apita income. c. Interstate Tax Exportation Tax exportation ways:

Federal deductibility of state and local income and property taxes from taxable income under the income tax amounts to tax exportation. 9. Governmental Grants Categorical Grants Matching Grants

Unconditional Grants a. The Theory of Grants

b. Impact of a Nonmatching Grant on the Political Equilibrium 10. Education Finance

The proper role of the federal government in school finance equity vs local control

Questions for review

1. What are the advantages and disadvantages of decentralized government? Why can a federal system of government take advantage of both centralized and decentralized collective decision making?

2. How many political jurisdictions do you reside in? List the government-provided services that you obtain from each of your jurisdictions. What kinds of taxes are levied in each jurisdiction to pay for those services?

3. Why does citizen mobility increase the desirability of decentralized decision making in relation to efficiency? What does Tiebout mean by “voting on your feet?” How does the Tiebout model explain residential location patterns?

4. Why are matching grants likely to be more effective in increasing local government spending than are equal-dollar nonmatching grants? Explain how matching grants can help achieve efficiency by internalizing interjurisdictional externalities.

附录：

教学课时分配表

章 目 章 名 课 时 数 18

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Individuals and Government Efficiency, Governments Public Goods Public Choice and the Political Process Markets, and 5 5 6 5 6 3 4 4 4 4 5 51 Externalities and Government A exercise Imitation of president or of speech finance minister Chapter 6 Chapter 7 Chapter 8 Chapter 9 Chapter 10 合 计

Introduction to Government Finance Taxation, Prices, Efficiency, and the Distribution of Income Budget Balance and Government Debt The Theory of Income Taxation Fiscal Federalism and State and Local Government

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