1. Intro Flashcards
What is public economics?
The role of the government in the economy
How much of National income do governments collect in taxes?
30-50%
What are the main market failures?
•externalities
•imperfect competition
•imperfectic or asymmetric info
•individual failures- people aren’t rational
When is the tax and transfer system progressive?
If the inequality in the tax system state is less than it would be otherwise
How are direct effects defined?
Effects of the intervention if individuals don’t change their behaviour in response to the intervention
How are indirect effects defined?
Effects born out of changes in behaviour as a result of the gov intervention (unintended effects)
Theoretical tools
Tools designed to understand the mechanics behind economic decision making
Normal goods
Goods for which demand increases as income increases
Inferior goods
Goods for which demand falls as income rises
Substitution effect
Holding utility constant, a relative rise in the price of a good will always cause an individual to choose less of that good
Income effect
A rise in price of a good will typically cause an individual to choose less of all goods because her income can purchase less than before
1st welfare theorem
If there are no externalities, perfect comp, perfect info, and agents are rational then private market equilibrium is Pareto efficient
2nd welfare theorem
Any Pareto efficient allocation can be reached by suitable redistribution of initial endowments then letting markets work freely
Why doesn’t 2nd welfare theorem work in theory?
Redistribution of initial endowments aren’t feasible. Gov needs to use distortionary taxes and transfers based on economic outcomes which created conflict between efficiency and equity
Utilitarian Social welfare function
Where society’s goal is to maximise the sum of individual utilities. If the marginal utility of money decreases with income then the utilitarian criterion redistributes from rich to poor
Rawlsian SWF
Society’s goal should be to maximise the well being of its worst off member
Just deserts (libertarian)
Individuals should receive compensation congruent to their contributions
Commodity egalitarianism
Society should ensure that individuals meet a basic set of needs
Equality of opportunity
Individuals should be compensated for inequalities that they aren’t responsible for
Correlation
Where two economic variables move together
Causation
One variable causes the movement of another variable
Identification problem
If two series are correlated, how do you determine whether one series is causing another?
Why do we need more than just randomise trials?
External validity and attrition
Time series analysis
Co-movement of two series over time
Cross sectional regression analysis
Relationship between two or more variables exhibited by many individuals at one point in time
Panel data
A dataset in which the behaviour of entities are observed across time
Quasi experiments
Changes in the economic environment that created nearly identical treatment and control groups for studying the effect of that environmental stage
