FISCAL ADMINISTRATION FINAL EXAM
SCRIPT VERIFIED QUESTIONS WITH
DETAILED SOLUTIONS GRADED A
◉ Public Goods. Answer: -Goods that are both Non-rivalrous and Non-
excludable. One person's consumption does not prevent another from
also consuming that good and if it is provided to some, it is necessarily
provided to all, even if they do not pay for that good
-Some Goods will not be Supplied in the Market. Two Reasons
-NONEXHAUSTION (Nonrivalry)
-Service can be enjoyed by additional people without reducing service to
existing population
-once the service has been provided the cost of additional users is zero
Exhausting Non exhausting/Nonrival
Exclusive-Private Goods (Food, Clothing, etc) Toll Goods, Bridges,
Cable TV
Non-exclusive-Common Pool (Aquifers, Fisheries) Public Goods,
National Defense, Vector Control
-NON-EXCLUDABILITY occurs when benefits can not be easily
limited to those who have paid for the service
-Free Rider problem, if firms can't prevent non-payers from using a
service no one will pay.
,-If no one will pay, the private market will under produced
◉ Externality. Answer: In economics, an externality is a cost or benefit,
not transmitted through prices, incurred by a party who did not agree to
the action causing the cost or benefit. A benefit, in this case, it is called a
positive externality or external benefit while a cost is called a negative
externality or external cost.
-When markets transactions between buyers and sellers affect a third
party external to the exchange
-Positive Externalities cause a good to be underproduced (Subsidies)
-Negative Externalities cause a good to be overproduced (Corrective
Taxes)
◉ Imperfect Information. Answer: -Consumers/firms not always making
rational decisions
-Adverse Selection-insurance purchasers impose higher costs on sellers
(only sick people buy health insurance)
-Moral Hazard-the presence of insurance causes riskier behavior
(football helmets, seat belts)
◉ Privatization. Answer: -May have several meanings. Primarily, it is
the process of transferring ownership of a business, enterprise, agency,
public service or public property from the public sector (a government)
, to the private sector, either to a business that operates for a profit or to a
non-profit organization. It may also mean government outsourcing of
service or functions to private firms, e.g. revenue collection, law
enforcement, and prison management.
Government Production Private Production
Government Provision-Sanitation Dept. plows the streets/ Government
use of Private contractors
Private Provision-Racetrack example / residential Building Hires
overnight Doorman
◉ Tax evaluation criteria for Tax policy Analysis. Answer: -Basic
concepts by which a government is meant to be guided in designing and
implementing an equitable taxation regime, these include:
-Adequacy- Taxes should be just enough to generate revenue required
for provisions of essential public service. they should have
Sustainability, hold enough yield and stable short-run revenue and long-
term growth.
-Collectability-the Goal is to keep the costs to collect a tax at a minimum
for both the government and taxpayers- Often trade-off with equity and
specificity
-Transparency-Taxpayers should know that a tax exists and how and
when it is imposed upon them and others- Adoption: Open process:
Administration: Non-negotiable: Compliance: Tax calculation is
obvious: Payment amounts: No hidden taxes
SCRIPT VERIFIED QUESTIONS WITH
DETAILED SOLUTIONS GRADED A
◉ Public Goods. Answer: -Goods that are both Non-rivalrous and Non-
excludable. One person's consumption does not prevent another from
also consuming that good and if it is provided to some, it is necessarily
provided to all, even if they do not pay for that good
-Some Goods will not be Supplied in the Market. Two Reasons
-NONEXHAUSTION (Nonrivalry)
-Service can be enjoyed by additional people without reducing service to
existing population
-once the service has been provided the cost of additional users is zero
Exhausting Non exhausting/Nonrival
Exclusive-Private Goods (Food, Clothing, etc) Toll Goods, Bridges,
Cable TV
Non-exclusive-Common Pool (Aquifers, Fisheries) Public Goods,
National Defense, Vector Control
-NON-EXCLUDABILITY occurs when benefits can not be easily
limited to those who have paid for the service
-Free Rider problem, if firms can't prevent non-payers from using a
service no one will pay.
,-If no one will pay, the private market will under produced
◉ Externality. Answer: In economics, an externality is a cost or benefit,
not transmitted through prices, incurred by a party who did not agree to
the action causing the cost or benefit. A benefit, in this case, it is called a
positive externality or external benefit while a cost is called a negative
externality or external cost.
-When markets transactions between buyers and sellers affect a third
party external to the exchange
-Positive Externalities cause a good to be underproduced (Subsidies)
-Negative Externalities cause a good to be overproduced (Corrective
Taxes)
◉ Imperfect Information. Answer: -Consumers/firms not always making
rational decisions
-Adverse Selection-insurance purchasers impose higher costs on sellers
(only sick people buy health insurance)
-Moral Hazard-the presence of insurance causes riskier behavior
(football helmets, seat belts)
◉ Privatization. Answer: -May have several meanings. Primarily, it is
the process of transferring ownership of a business, enterprise, agency,
public service or public property from the public sector (a government)
, to the private sector, either to a business that operates for a profit or to a
non-profit organization. It may also mean government outsourcing of
service or functions to private firms, e.g. revenue collection, law
enforcement, and prison management.
Government Production Private Production
Government Provision-Sanitation Dept. plows the streets/ Government
use of Private contractors
Private Provision-Racetrack example / residential Building Hires
overnight Doorman
◉ Tax evaluation criteria for Tax policy Analysis. Answer: -Basic
concepts by which a government is meant to be guided in designing and
implementing an equitable taxation regime, these include:
-Adequacy- Taxes should be just enough to generate revenue required
for provisions of essential public service. they should have
Sustainability, hold enough yield and stable short-run revenue and long-
term growth.
-Collectability-the Goal is to keep the costs to collect a tax at a minimum
for both the government and taxpayers- Often trade-off with equity and
specificity
-Transparency-Taxpayers should know that a tax exists and how and
when it is imposed upon them and others- Adoption: Open process:
Administration: Non-negotiable: Compliance: Tax calculation is
obvious: Payment amounts: No hidden taxes
