??
??
??
7?
24
us
ni
ge
dy
, PUBLIC FINANCE
A Contemporary Application of Theory to Policy
12th Edition
David N. Hyman
tu
TABLE OF CONTENTS
PART I: THE ECONOMIC BASIS FOR GOVERNMENT ACTIVITY
d
Chapter 1 Individuals and Government
Chapter 2 Efficiency, Markets, and Governments
yg
Chapter 3 Externalities and Government Policy
Chapter 4 Public Goods
Chapter 5 Public Choice and the Political Process
en
PART II: GOVERNMENT EXPENDITURES AND POLICY IN THE UNITED STATES:
SELECTED ISSUES
Chapter 6 Cost-Benefit Analysis and Government Investments
Chapter 7 Government Subsidies and Income Support for the Poor
iu
Chapter 8 Social Security and Social Insurance
Chapter 9 Government and Health Care
PART III: FINANCING GOVERNMENT EXPENDITURES
s2
Chapter 10 Introduction to Government Finance
Chapter 11 Taxation, Prices, Efficiency, and the Distribution of Income
Chapter 12 Budget Balance and Government Debt
47
PART IV: TAXATION: THEORY AND STRUCTURE
Chapter 13 The Logic of the Tax System
Chapter 14 Taxation of Personal Income in the United States
??
Chapter 15 Taxation of Corporate Income
Chapter 16 Taxes on Consumption and Sales
Chapter 17 Taxes on Wealth, Property, and Estates
??
PART V: STATE AND LOCAL GOVERNMENT FINANCE
Chapter 18 Fiscal Federalism: Responsibilities and Finances of State and Local
Governments
??
? ?
, S O L U T IO N M AN U AL FO R
P U BL I C F I NAN CE A CO N T E M P O RARY
tu
AP P L I CAT I O N O F T H EO R Y T O P O L I CY 1 2 T H
E DI T I O N DAVI D N H Y M A N
d
yg
CH AP T E R 1
en
Individuals and Government
iu
INSTRUCTIONAL OBJECTIVES
s2
Chapter 1 is a general introduction to the field of public finance, emphasizing the relationship between
individuals and government. The functions of government are outlined, and the importance of taxes in
household budgets is highlighted. The chapter seeks to develop an understanding of the economic role of
government as a supplier of useful goods and services. Students are also expected to digest data on the
actual extent of government activity in the United States and other nations. They should know the current
47
structure of government expenditures and revenues in the United States, how government has grown
since 1920, and how the structure of federal government spending has changed since 1960.
In addition, the chapter seeks to demonstrate that the problem of scarcity implies that an increase in
resources devoted to government goods and services decreases availability of resources for nongovern-
ment uses. It is also made clear to students how government provision of goods and services differs from
??
market provision of goods and services.
CHANGES IN THIS EDITION
??
Chapter 1 discusses the growth in government spending, the impact of slow economic growth on
public finance on the federal, state and local government levels, and health care issues.
All data on government spending and revenues have been updated to the latest available year. Public
expenditure data have been revised using the latest National Income and Product Account (NIPA)
??
figures for government consumption and investment, documenting the rise in the share of the public
sector as a share of GDP since 2001.
The International View on government spending has been revised and updated with the latest data.
Discussion of mandatory versus discretionary federal government spending has been added.
?
Graphs have been redone to reflect the latest available observations.
?
1
, 2 | Part One | The Economic Basis of Government Activity
The discussion of the mix between transfer payments and government consumption has been revised.
The growth in health care spending by government has been documented, showing that it is now the
largest and fastest growing category of federal government expenditure.
tu
The analysis of the implications of aging populations for public finance has been updated based on
empirical analysis of the latest UN projections of changing world demographics. There is more
discussion of European aging and implications for pension systems. The impact the aging population
on health care spending in the United States is discussed.
d
CHAPTER OUTLINE
yg
Individuals, Society, and Government
Governments and Political Institutions
The Allocation of Resource between Government and Private Use
en
The Mixed Economy, Markets, and Politics
Government Expenditures in the United States
International View: How Much Government? The Share of Government Expenditure in Modern
iu
Economies
The Structure of State and Local Government Expenditure
s2
Financing Government Expenditure in the United States
Market Failure and the Functions of Government: How Much Government Is Enough?
Aging Populations: Implications for Public Finance
47
MAJOR POINTS AND LECTURE SUGGESTIONS
1. My objective in the first lecture is to make it clear to students how economic analysis of the func-
tions and activities of governments fits in with their other courses. Since most students have already
??
had at least one course in microeconomics, I point out how governments can be thought of as
agents for supplying goods and services whose quantities have been determined through political,
as opposed to market, interaction. The role of government in the mixed economy is schematically
illustrated with a modified circular flow diagram. Figure 1.2 represents a useful starting point for
illustrating how the economic analysis of government fits in with previous analyses of markets to
??
which most students will have already been exposed. I usually draw the diagram on the board and
show how both households and business firms have economic relations with governments.
2. The tradeoff between government goods and services, and private goods and services is illustrated
with the production possibility curve. Figure 1.1 is familiar to most students, and its application to
??
analysis of government goods and services usually captures their attention. It helps to use the graph
in class to discuss reallocation of resources from military to nonmilitary uses. Another interesting
use of the graph is to show how increased environmental quality improvement services supplied by
government will require the sacrifice of material goods and services, as the prices of such products
as fuel, electricity, and automobiles rise.
? ?
??
??
7?
24
us
ni
ge
dy
, PUBLIC FINANCE
A Contemporary Application of Theory to Policy
12th Edition
David N. Hyman
tu
TABLE OF CONTENTS
PART I: THE ECONOMIC BASIS FOR GOVERNMENT ACTIVITY
d
Chapter 1 Individuals and Government
Chapter 2 Efficiency, Markets, and Governments
yg
Chapter 3 Externalities and Government Policy
Chapter 4 Public Goods
Chapter 5 Public Choice and the Political Process
en
PART II: GOVERNMENT EXPENDITURES AND POLICY IN THE UNITED STATES:
SELECTED ISSUES
Chapter 6 Cost-Benefit Analysis and Government Investments
Chapter 7 Government Subsidies and Income Support for the Poor
iu
Chapter 8 Social Security and Social Insurance
Chapter 9 Government and Health Care
PART III: FINANCING GOVERNMENT EXPENDITURES
s2
Chapter 10 Introduction to Government Finance
Chapter 11 Taxation, Prices, Efficiency, and the Distribution of Income
Chapter 12 Budget Balance and Government Debt
47
PART IV: TAXATION: THEORY AND STRUCTURE
Chapter 13 The Logic of the Tax System
Chapter 14 Taxation of Personal Income in the United States
??
Chapter 15 Taxation of Corporate Income
Chapter 16 Taxes on Consumption and Sales
Chapter 17 Taxes on Wealth, Property, and Estates
??
PART V: STATE AND LOCAL GOVERNMENT FINANCE
Chapter 18 Fiscal Federalism: Responsibilities and Finances of State and Local
Governments
??
? ?
, S O L U T IO N M AN U AL FO R
P U BL I C F I NAN CE A CO N T E M P O RARY
tu
AP P L I CAT I O N O F T H EO R Y T O P O L I CY 1 2 T H
E DI T I O N DAVI D N H Y M A N
d
yg
CH AP T E R 1
en
Individuals and Government
iu
INSTRUCTIONAL OBJECTIVES
s2
Chapter 1 is a general introduction to the field of public finance, emphasizing the relationship between
individuals and government. The functions of government are outlined, and the importance of taxes in
household budgets is highlighted. The chapter seeks to develop an understanding of the economic role of
government as a supplier of useful goods and services. Students are also expected to digest data on the
actual extent of government activity in the United States and other nations. They should know the current
47
structure of government expenditures and revenues in the United States, how government has grown
since 1920, and how the structure of federal government spending has changed since 1960.
In addition, the chapter seeks to demonstrate that the problem of scarcity implies that an increase in
resources devoted to government goods and services decreases availability of resources for nongovern-
ment uses. It is also made clear to students how government provision of goods and services differs from
??
market provision of goods and services.
CHANGES IN THIS EDITION
??
Chapter 1 discusses the growth in government spending, the impact of slow economic growth on
public finance on the federal, state and local government levels, and health care issues.
All data on government spending and revenues have been updated to the latest available year. Public
expenditure data have been revised using the latest National Income and Product Account (NIPA)
??
figures for government consumption and investment, documenting the rise in the share of the public
sector as a share of GDP since 2001.
The International View on government spending has been revised and updated with the latest data.
Discussion of mandatory versus discretionary federal government spending has been added.
?
Graphs have been redone to reflect the latest available observations.
?
1
, 2 | Part One | The Economic Basis of Government Activity
The discussion of the mix between transfer payments and government consumption has been revised.
The growth in health care spending by government has been documented, showing that it is now the
largest and fastest growing category of federal government expenditure.
tu
The analysis of the implications of aging populations for public finance has been updated based on
empirical analysis of the latest UN projections of changing world demographics. There is more
discussion of European aging and implications for pension systems. The impact the aging population
on health care spending in the United States is discussed.
d
CHAPTER OUTLINE
yg
Individuals, Society, and Government
Governments and Political Institutions
The Allocation of Resource between Government and Private Use
en
The Mixed Economy, Markets, and Politics
Government Expenditures in the United States
International View: How Much Government? The Share of Government Expenditure in Modern
iu
Economies
The Structure of State and Local Government Expenditure
s2
Financing Government Expenditure in the United States
Market Failure and the Functions of Government: How Much Government Is Enough?
Aging Populations: Implications for Public Finance
47
MAJOR POINTS AND LECTURE SUGGESTIONS
1. My objective in the first lecture is to make it clear to students how economic analysis of the func-
tions and activities of governments fits in with their other courses. Since most students have already
??
had at least one course in microeconomics, I point out how governments can be thought of as
agents for supplying goods and services whose quantities have been determined through political,
as opposed to market, interaction. The role of government in the mixed economy is schematically
illustrated with a modified circular flow diagram. Figure 1.2 represents a useful starting point for
illustrating how the economic analysis of government fits in with previous analyses of markets to
??
which most students will have already been exposed. I usually draw the diagram on the board and
show how both households and business firms have economic relations with governments.
2. The tradeoff between government goods and services, and private goods and services is illustrated
with the production possibility curve. Figure 1.1 is familiar to most students, and its application to
??
analysis of government goods and services usually captures their attention. It helps to use the graph
in class to discuss reallocation of resources from military to nonmilitary uses. Another interesting
use of the graph is to show how increased environmental quality improvement services supplied by
government will require the sacrifice of material goods and services, as the prices of such products
as fuel, electricity, and automobiles rise.
? ?
