Chapter 1-Introduction Public economics
1 Chapter 1 - Introduction Public Economics
Public Finance defined Public finance is about the taxing and spending activities of the government Also known as"public sector economics"or"public economIcs Focus is on microeconomic functions of government polices that affect overall unemployment or price levels are left for macroeconomics Scope of public finance unclear - government has role in many activities, but focus will be on taxes and spending
2 Public Finance Defined • Public finance is about the taxing and spending activities of the government. • Also known as “public sector economics” or “public economics.” • Focus is on microeconomic functions of government – polices that affect overall unemployment or price levels are left for macroeconomics. • Scope of public finance unclear – government has role in many activities, but focus will be on taxes and spending
Public Finance and Ideology How should a government function in economic sphere Organic view-community stressed above individual Goals of society set by the state Mechanistic view- government is a contrivance created by individuals to better achieve their individual goals Individual, not group, is at center stage This is the viewpoint taken in the textbook
3 Public Finance and Ideology • How should a government function in economic sphere? • Organic view – community stressed above individual. Goals of society set by the state. • Mechanistic view – government is a contrivance created by individuals to better achieve their individual goals. Individual, not group, is at center stage. – This is the viewpoint taken in the textbook
Government at a glance Legal framework Federal government No real constraints on spending in constitution Taxes must come originate in House of Representatives Equal tax rates across states Income tax came from 1 6th amendment to constitution Can run budget deficits State and local government Can impose spending/taxing restrictions on itself Many states cannot run budget deficits
4 Government at a Glance • Legal framework – Federal government • No real constraints on spending in Constitution • Taxes must come originate in House of Representatives. – Equal tax rates across states. – Income tax came from 16th amendment to Constitution. • Can run budget deficits – State and local government • Can impose spending / taxing restrictions on itself. • Many states cannot run budget deficits
Government at a glance Size of government how to measure? Number of government employees Annual expenditures Purchases of goods and services, transfers and interest payments Unified budget-In 2001, $1.6 trillion spent at federal level and another $1.3 trillion at state and local levels
5 Government at a Glance • Size of government – how to measure? – Number of government employees – Annual expenditures • Purchases of goods and services, transfers, and interest payments • Unified budget – In 2001, $1.6 trillion spent at federal level, and another $1.3 trillion at state and local levels