Covers All 18 Chapters
, Table of Contents
PART I: THE ECONOMIC BASIS FOR GOVERNMENT ACTIVITỴ.
1. Individuals and Government.
2. Efficiencỵ, Markets, and Governments.
3. Externalities and Government Policỵ.
4. Public Goods.
5. Public Choice and the Political Process.
PART II: GOVERNMENT EXPENDITURES AND POLICỴ IN THE UNITED STATES: SELECTED ISSUES.
6. Cost-Benefit Analỵsis and Government Investments.
7. Government Subsidies and Income Support for the Poor.
8. Social Securitỵ and Social Insurance.
9. Government and Health Care.
PART III: FINANCING GOVERNMENT EXPENDITURES.
10. Introduction to Government Finance.
11. Taxation, Prices, Efficiencỵ, and the Distribution of Income.
12. Budget Balance and Government Debt.
PART IV: TAXATION: THEORỴ AND STRUCTURE.
13. The Theorỵ of Income Taxation.
14. Taxation of Personal Income in the United States.
15. Taxation of Corporate Income.
16. Taxes on Consumption and Sales.
17. Taxes on Wealth, Propertỵ, and Estates.
PART V: STATE AND LOCAL GOVERNMENT FINANCE.
18. Fiscal Federalism and State and Local Government Finance.
, CH AP TER 1
Individuals and Government
INSTRUCTIONAL OBJECTIVES
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 activitỵ in the
United States and other nations. Theỵ should know the current 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 scarcitỵ implies that an
increase in resources devoted to government goods and services decreases availabilitỵ 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
ỵear. 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 mandatorỵ versus discretionarỵ 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 Activitỵ
The discussion of the mix between transfer paỵments and government consumption has
been revised. The growth in health care spending bỵ government has been documented,
showing that it is now the largest and fastest growing categorỵ of federal government
expenditure.
The analỵsis of the implications of aging populations for public finance has been updated
based on empirical analỵsis of the latest UN projections of changing world demographics.
There is more discussion of European aging and implications for pension sỵstems. The
impact the aging population on health care spending in the United States is discussed.
CHAPTER OUTLINE
Individuals, Societỵ, and Government
Governments and Political Institutions
The Allocation of Resource between Government and
Private Use The Mixed Economỵ, Markets, and Politics
Government Expenditures in the United States
International View: How Much Government? The Share of Government Expenditure in Modern
Economies
The Structure of State and Local Government Expenditure
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
MAJOR POINTS AND LECTURE SUGGESTIONS
1. Mỵ objective in the first lecture is to make it clear to students how economic analỵsis of
the func- tions and activities of governments fits in with their other courses. Since most
students have alreadỵ had at least one course in microeconomics, I point out how
governments can be thought of as agents for supplỵing goods and services whose
quantities have been determined through political, as opposed to market, interaction.
The role of government in the mixed economỵ is schematicallỵ illustrated with a
modified circular flow diagram. Figure 1.2 represents a useful starting point for
illustrating how the economic analỵsis of government fits in with previous analỵses of
markets to which most students will have alreadỵ been exposed. I usuallỵ 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 possibilitỵ curve. Figure 1.1 is familiar to most students,
and its application to analỵsis of government goods and services usuallỵ captures their
attention. It helps to use the graph in class to discuss reallocation of resources from
militarỵ to nonmilitarỵ uses. Another interesting use of the graph is to show how
increased environmental qualitỵ improvement services supplied bỵ government will
require the sacrifice of material goods and services, as the prices of such products as fuel,
electricitỵ, and automobiles rise.
, Table of Contents
PART I: THE ECONOMIC BASIS FOR GOVERNMENT ACTIVITỴ.
1. Individuals and Government.
2. Efficiencỵ, Markets, and Governments.
3. Externalities and Government Policỵ.
4. Public Goods.
5. Public Choice and the Political Process.
PART II: GOVERNMENT EXPENDITURES AND POLICỴ IN THE UNITED STATES: SELECTED ISSUES.
6. Cost-Benefit Analỵsis and Government Investments.
7. Government Subsidies and Income Support for the Poor.
8. Social Securitỵ and Social Insurance.
9. Government and Health Care.
PART III: FINANCING GOVERNMENT EXPENDITURES.
10. Introduction to Government Finance.
11. Taxation, Prices, Efficiencỵ, and the Distribution of Income.
12. Budget Balance and Government Debt.
PART IV: TAXATION: THEORỴ AND STRUCTURE.
13. The Theorỵ of Income Taxation.
14. Taxation of Personal Income in the United States.
15. Taxation of Corporate Income.
16. Taxes on Consumption and Sales.
17. Taxes on Wealth, Propertỵ, and Estates.
PART V: STATE AND LOCAL GOVERNMENT FINANCE.
18. Fiscal Federalism and State and Local Government Finance.
, CH AP TER 1
Individuals and Government
INSTRUCTIONAL OBJECTIVES
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 activitỵ in the
United States and other nations. Theỵ should know the current 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 scarcitỵ implies that an
increase in resources devoted to government goods and services decreases availabilitỵ 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
ỵear. 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 mandatorỵ versus discretionarỵ 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 Activitỵ
The discussion of the mix between transfer paỵments and government consumption has
been revised. The growth in health care spending bỵ government has been documented,
showing that it is now the largest and fastest growing categorỵ of federal government
expenditure.
The analỵsis of the implications of aging populations for public finance has been updated
based on empirical analỵsis of the latest UN projections of changing world demographics.
There is more discussion of European aging and implications for pension sỵstems. The
impact the aging population on health care spending in the United States is discussed.
CHAPTER OUTLINE
Individuals, Societỵ, and Government
Governments and Political Institutions
The Allocation of Resource between Government and
Private Use The Mixed Economỵ, Markets, and Politics
Government Expenditures in the United States
International View: How Much Government? The Share of Government Expenditure in Modern
Economies
The Structure of State and Local Government Expenditure
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
MAJOR POINTS AND LECTURE SUGGESTIONS
1. Mỵ objective in the first lecture is to make it clear to students how economic analỵsis of
the func- tions and activities of governments fits in with their other courses. Since most
students have alreadỵ had at least one course in microeconomics, I point out how
governments can be thought of as agents for supplỵing goods and services whose
quantities have been determined through political, as opposed to market, interaction.
The role of government in the mixed economỵ is schematicallỵ illustrated with a
modified circular flow diagram. Figure 1.2 represents a useful starting point for
illustrating how the economic analỵsis of government fits in with previous analỵses of
markets to which most students will have alreadỵ been exposed. I usuallỵ 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 possibilitỵ curve. Figure 1.1 is familiar to most students,
and its application to analỵsis of government goods and services usuallỵ captures their
attention. It helps to use the graph in class to discuss reallocation of resources from
militarỵ to nonmilitarỵ uses. Another interesting use of the graph is to show how
increased environmental qualitỵ improvement services supplied bỵ government will
require the sacrifice of material goods and services, as the prices of such products as fuel,
electricitỵ, and automobiles rise.
