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49 Cards in this Set
- Front
- Back
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Normative Public Economics |
What government should do Determinants: Market failure; perceived needs Risks: Overemphasis on market failure |
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Posisitive Public Economics |
What governments actually does Determinants: Capacity; motives; constraints Risks: Overemphasis on government failure |
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Classification of government expenditure: Economic |
Current expenditure - compensation of employees; subsidies; transfers to HH; purchases of goods & services Capital expenditure |
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Classification of government expenditure: Functional |
General public service - interest on public debt Protection services - defense Social services - education; HC; recreation Economic services - agri; mining; labour; envrnm |
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Developmental State |
Singular focus on economic growth Active state-led industrial policy Highly capable professional bureaucracies Growth-focused labour & education policies Authoritarian regimes focusing on stability Very high savings & investment rates Export-led growth models |
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Developmental Welfare State: Social Investment States |
Scandinavia; Brazil Welfare state with strong focus on productivity and international competitiveness Education, training, HC, active labour-market policies |
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Developmental Welfare State: Transfer Welfare State |
Southern Europe Welfare states with a markedly weaker focus on productivity and international competitiveness Passive social transfers - generous unemployment compensastion; pensions |
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General government |
Central government (govt. departments; xtra budget institutions; social security funds) plus Provincial governments Local governments |
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Public sector |
General government pus Public enterprises & corporations (SABC; Eskom) |
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Resource use |
Final demand / exhaustive expenditure by government |
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Resource mobilisation |
Transfer payments (subsidies; public debt interest) to entities outside public sector - non-exhaustive government expediture + Interest payments to HH, business & foreign sectors |
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Public economics |
The study of the nature, principles and economic consequences of expenditure, taxation, financing and the regulatory actions undertaken by the non-profit making government sector of the economy. |
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Individualistic view of government (mechanistic) |
Recognises the supremacy of the individual of his or her freedom of choice |
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Public Interest view of government (collectivist / organic) |
Collective choice and preferences exist independently of individual preferences. National interest should be maximised |
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Mixed goods |
Possess Private and Public good characteristics. Non-rival, excludable mixed goods - toll gate Rival, non-excludable mixed goods - (main thoroughfares on weekdays) |
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Pure Public goods |
Do not have private good characteristics. Street lighting; national defense |
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Pareto optimality in production |
It should not be possible to increase output of any one commodity without thereby decreasing output of the other commodity MRPT = MC /MC = P /P |
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Pareto optimality in consumption |
No interpersonal re-allocation of commodities would increase the utility of one consumer without decreasing the utility of the other consumer MRS = P /P = MRS |
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Top-level Pareto condition |
It should not be possible to increase output of either commodity, or utility of either consumer, without thereby reducing that of the other. MRPT = MC /MC = P /P = MRS = MRS |
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Technical (X-) efficiency |
Optimal utilization of existing resources Maximum output from given set of resources |
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Allocative efficiency |
Resources allocated in accordance with consumer's wishes Implies production of an optimal mix of commodities |
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Dynamic efficiency |
Economic growth Increases in the quantity or productivity of resources |
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3 Functions of government |
Allocative - attempts to correct market failures that disstort allocation through providing public & mixed goods, dealing with externalities, regulating natural monopolies. Distributive - Attempts to reduce the inequality of market outcomes through providing progressive taxes, income transfers Stabilisation - Attempts to achieve macroeconomic objectives through budget balances, public debt burden |
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Direct government intervention |
Actual government participation in the economy - spending programmes and financing activities |
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Indirect government intervention |
Regulation of private-sector activity |
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Regulation |
Enacting a law or proclaiming a legal binding rule that gives rise to market outcomes that are different from those that would have been obtained in the absence of the intervention. |
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Merit goods |
Education & Health Services |
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Positive externalities |
Someone's consumption or production activity confers a benefit on a third party free of charge |
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Negative externality |
Someone's consumption or production activity confers a cost on a third party for which they are not compensated. |
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Technological externality |
Direct effect on the consumption/production of a third party |
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Pecuniary externality |
Changes supply and demand conditions and market prices facing the third party |
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Pigouvian taxes |
Force parties to include the external effects of their cost and benefit calculations. |
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Monopolistic competion |
Many firms produce close substitutes and each firm has some control over price |
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Oligopoly |
Few firms produce a homogenous product and each one has considerable control over price. |
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General tax |
Taxes entire tax base and allows for no exemptions - VAT |
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Selective taxes |
Imposed on one or only a few products or only income excluding leisure |
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Ad Valorem taxes |
Taxes imposed on the value of products |
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Unit tax |
Fixed amount is imposed per unit of the product |
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Lump-sum tax |
A tax on income, wealth or consumption per head |
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Tax incidence |
Depends on how prices are determined Who carries tax |
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Statutory Incidence |
Legal liability to pay the tax over to the revenue authorities |
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Economic incidence |
Who ultimately bears the tax burden |
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Balanced-budget incidence approach |
The overall distributional effect of a tax and the spending financed by the tax is considered |
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Differential tax incidence |
Methodology considers the distributional impact as one tax is substituted for another, holding total revenue and expenditure constant |
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Tax neutrality |
Traditional - mainly concerned with allocation, taxes should be neutral. Tax should have little or no impact on economic decisions. Assumption that economic resources are optimally allocated & non-neutral taxes would result in a re-allocation and therefore non-optimal. |
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Tax shifting |
Shifting of tax level |
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Excess burden / DWL |
When burden on tax payers > what is necessary to generate a certain amount of revenue
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Ramsay Rule |
* |
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Optimal taxation |
* |
