pub econ lecture 01 intro

8/3/2019 Pub Econ Lecture 01 Intro

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Public Finance Dr. Katie Sauer


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Public Finance is the study of the role of government in

the economy:

When should the government intervene?

How might the government intervene?

Whatis the effect of the intervention?

Why do governments choose to intervene in the

way that they do?


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There is disagreementamong economists on the extentto

which the government should intervene for these reasons.

When should the government

intervene in the economy?

make markets possible

- property rights

- sound currency

- deter fraud

redistribute wealthdeal with

market failures

- public goods

- externalities


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The Measles Epidemic of 19891991

o vaccine introduced in 1963, by the 1980s cases were very rare

o 1989-1991 huge resurgence in cases

- due to low immunization rates among inner-city youths

- negative externality

o in early 1990s the federal government publically encouraged

parents to get children immunized

o federal government paid for vaccines for low-income families

o immunization rates rose to 90% by 1995 (had never been > 70%)


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How might thegovernment

intervene?

Price Mechanisms

- taxes

- subsidies

Restrict or Mandate

Private Sales or Purchases

Public Provision of

Goods or Services Public Financing of

Private Provision

Regulation


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What are the effects of the intervention?

Indirect Effects are those that arise only because individuals change

their behavior in response to the interventions.

Direct Effects are those that would be predicted

if individuals did not change their behavior in

response to the intervention.


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Scenario: In order to make college more affordable for

students from families with fewer resources, a

government has proposed allowing the student of any

family with less than $50,000 in savings to attend apublic university for free.

Discuss the direct and indirect costs of this policy.


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Why do governments do what they do?

Well need some of the tools from Political Economy to

answer this question.

The theory of how the political

process produces decisions thataffect individuals and the

economy.


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Course Overview:

Basic Economic ToolsCh 2: Ch 3: Ch 4:

Theoretical Tools Empirical Tools Intro to Budgets

Addressing Market FailuresCh 5-6 Externalities

Ch 7-9 Public GoodsCh 10 State / Local Govt

Ch 11 Education

RedistributionCh 12-14 Social Insurance

Ch 15-16 Health InsuranceCh 17 Income Distribution

TaxesCh 18 intro

Ch 19-20 implications

Ch 21-23 taxes on individuals

Ch 24 corporate taxes

Ch 25 tax reform

Exam

1

Exam

2

Exam

3


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pub econ lecture 01 intro

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