Intro Flashcards
Role of government (4)
Regulatory structure
Taxes
Expenditure
Macro-Stabilisation (through fiscal, central bank etc)
When should the government intervene (2)
If market failures exist - intervention MAY (OR MAY NOT) help
Redistribution if inequality
Equity efficiency diagram
Main market failures (4)
Externalities e.g emission (fix by pigouvian tax)
Imperfect competition e.g monopoly (fix by reg)
Asymmetric information (fix by insurance)
Individual failures e.g irrationality
Even if no market failures and efficent, may not be optimal for society if equilibrium has high inequality.
Way to redistribute
B) key problem
Taxes and transfers system
B) equity-efficiency tradeoff = redistribution can be detested and reduce incentives to work (efficiency costs - if reward for rich falls)
Income inequality in US -
What share of national income goes to top 10% 2017
Top 10% own above 45% income
How can government intervene (4)
Tax overproduction, subsidise underproduction
Restrict or mandate private sale/purchase
Public provisions: gov provide good directly
Public financing of private provision: gov pays for good but private sector supplies it
Direct vs indirect effects of intervention
Direct effects: effect predicted given individual do not respond to the interventions
Indirect effects: effects from individuals changing their behaviour (unintended consequences)
Normative v positive public economics
Normative analyses how things should be
Positive analyses how things really are
we need positive to complete normative
Paternalism vs behavioural view
on why individuals do not act in best interests
Paternalism: individual failures don’t exist. Gov impose own preferences against individuals will
Behavioural: Individual failures like self control, cognitive ability etc explain why individuals do not act in best interests
So under which view do individuals oppose/support government intervention
Under Paternalism they oppose
Under behavioural view, individual failures exist, so thus they support gov help and intervention
What has happened to government size and growth overtime
It has increased (public spending as % of GDP)
Cause of government growth
Expansion of welfare state
(Public education, public retirement benefits, public health insurance, income support programs)
Does gov spending often >taxes?
Yes in most countries have high debt-to-gdp esp after 2008 GFC
Wars on public spending
B) on tax
Spikes it: WW2 9.6% of GDP in 1940
B) higher tax during war too
US tax system Obama vs Trump
Obama increased tax on top earners, trump reduced it
