Chapter 1. Individuals and Government

Transcription

1 Chapter 1 Individuals and Government Copyright 2002 by Thomson Learning, Inc. 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 X

2 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.

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

4 Examples of Political Institutions Majority rule Representative government

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

6 Government Goods and Services per Year Copyright 2002 by Thomson Learning, Inc. Figure 1.1 A Production-Possibility Frontier C G 2 B G 1 A 0 X 2 X 1 M Private Goods and Services per Year

7 Distribution of Government Goods and Services Nonmarket rationing: Prices and willingness to pay those prices are not applicable to goods such as national defense.

8 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.

9 Figure 1.2 Circular Flow in the Mixed Economy Copyright 2002 by Thomson Learning, Inc. Goods & Services Dollars Output Market Goods & Services Dollars Households Income Support & Subsidies Taxes, fees, charges Government Services Government Subsidies Taxes, fees, charges Government Services Firms Dollars Resources Input Market Dollars Resources

10 Government Expenditures in the United States Government purchases of labor land capital Government Transfer Payments Welfare Social Security

11 Table 1.1 (abbreviated) Growth in Government Expenditures Year GDP Federal Government State and Local Government Total Government Percentage of GDP Total

12 International Comparisons Country Government Current Expenditures as a Percentage of GDP 2001 Denmark 53.5 France 50.5 Germany 46.2 Canada 40.7 United Kingdom 39.5 Japan 38.2 United States 29.7

13 Percentage of GDP Figure 1.3 Total Government Expenditure as a Percentage of GDP Copyright 2002 by Thomson Learning, Inc. Year

14 Structure of Federal Government Expenditures Purchases of Goods and Services Transfer Payments Grants in Aid to State and Local Governments Net Interest Paid

15 Federal Expenditure by Category, 1999 Table 1.2 Category Percentage of Total Federal Expenditures Transfer Payments Purchases Interest Grants to State and Local Other 2.18

16 Percentage of Total Federal Expenditure Figure 1.4 The Distribution of Federal Expenditure, Government Purchases Transfer Payments Grants to State and Local Governments 10 Net Interest Year Copyright 2002 by Thomson Learning, Inc.

17 Federal Government Expenditure by Function Veteran s Benefits 3% Transportation 3% Education 4% All other 5% Social Security 23% Health 9% Net Interest 11% National Defense 16% Medicare 12% Copyright 2002 by Thomson Learning, Inc. Income Security 14%

18 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

19 State and Local Government Expenditure Recreational and Cultural Activities 2% Other 7% Health and Hospitals 3% Income Security 5% Executive Legislative and Judicial 11% Education 42.71% Transportation 13% Copyright 2002 by Thomson Learning, Inc. Civilian Safety 16%

20 Financing Government Expenditures in the US Taxes: Income (Corporate and Personal) Payroll Excise Customs

21 Federal Revenues Customs Duties 1% Excise Taxes 4% Corporate Profits Taxes 12% Other 1% Income Taxes 47% Payroll Taxes 35%

22 State and Local Government Revenues Other 8% Sales Taxes 27% Property Taxes 21% Corporate Profit Taxes 3% Payroll Taxes 1% Nontaxes 3% Federal Grants 20% Income Taxes 17%

23 Implications of a Graying America Social Security Medicare Medicaid

24 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.