ECO 370: Economics of Public Finance Week 1-2
ECO 370: Economics of Public Finance Week 1-2 ECO 370
Popular in Economics of Public Finance
Popular in Department
This 6 page Class Notes was uploaded by Natalie Chevalier on Tuesday September 20, 2016. The Class Notes belongs to ECO 370 at Pace University - New York taught by Dr. Joseph Morreale in Fall 2016. Since its upload, it has received 15 views.
Reviews for ECO 370: Economics of Public Finance Week 1-2
Report this Material
What is Karma?
Karma is the currency of StudySoup.
You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!
Date Created: 09/20/16
Eco 370: Economics of Public Finance Week 1: 9/8/16 Introduction to Public Policy (Dye) Public Policy— whatever governments choose to do or not to do. They can choose to regulate conflict within society, organize society to carry on conflict with other societies, extract money from the economy often in the forms of taxes. Pubic Policy regulates behavior, organizes bureaucracy, distributes benefits and determines taxation codes. Public policy is designed to help ameliorate a public issue not totally solve it. Law of Increasing Cost— principle that states that once factors of production are at maximum output and efficiency producing more will cost more than average. As production increases opportunity cost does as well. NonDiscretionary—Money from the federal budget that must be spent. i.e. Social Security. Discretionary— Money that Congress can decide to allocate where they think best. Policy Expansion and Growth A public policy is designed to alleviate personal discomfort or societal unease. Over the years, as society relies more on the government to solve their problems, public policy has expanded to encompass every aspect of American life. Not everything is solved by public policy. Things like healthcare, medicare, and education are part of regulatory activity, which is not reflected in government budgets. Why study Public Policy? Political Science is more than just studying the various government institutions, powers, and duties. It is also the study of “who gets what, when, and how?” Public policy is the description and explanation of the causes and consequences of government activity. This focus involves a description of the content of public policy; an analysis of the impact of social, economic, and political forces on the content of public policy. What can we learn from it? We can learn about the policies themselves and what they do. We can also better understand the causes that determine public policy. Consequences and effects of public policy on society. Difference between public analysis & public advocacy Public Advocacy— is saying what governments should do to change things versus public analysis, which aims to explain why governments do what they do. Week 2: 9/13/16 Introduction to Public Finance (R&G) “Public finance is a discussion about the relationship between the individual and the state.” Public Finance— focuses on the microeconomics of government; the way government affects the allocation of resources and the distribution of income. Also called Public Sector Economics or Public Economics. Organic view of Government o Society is a natural organism o Individuals are parts or the organism that have significance only as part of the community. Role of Federal Government Fiscal Policy: taxes + spending, during inflation taxes go up and spending goes down which leads to a surplus. In a recession it is vice versa which leads to a deficit. o Automatic stabilizer policy: Welfare o Action policy National Security/ Defense Providing necessary but unprofitable goods and services Postal service Transportation Regulation of Private enterprise: to stop monopolies, to maintain competition, quality control Justice system Inequality: welfare, health care, progressive taxation Tools of Positive Analysis (R&G Ch. 2) “Numbers live. Numbers take on vitality.” Economist and policymakers are constantly debating the various consequences of various government actions. The Role of Theory Consider this: The labor of supply posits that the work decision is based on the rational allocation of time. Rogers has only a certain amount of hours in the day: how many hours should he devote to work and how many hours to leisure. Rogers derives utility from leisure. His problem is finding the combination of income and leisure that maximizes utility. Imagine he has found his utility maximizing combo based on his wage rate of $10. Now the government imposes a tax on earnings of 20%. Now his aftertax wage is $8. What does he do, work more, work less, or nothing? Theory alone cannot predict the impact of an earnings tax on an individual’s willingness to work. Analysis based on observation as opposed to theory can really tell us the effects of such policies on the labor force. Substitution Effect— The tendency of an individual to consume more of one good and less of another because of a decrease in the price of the former relative to the latter. Normal Good— A good for which demand increases as income increases and demand decreases as income decreases, all else equal. Income Effect— The effect of a price change on the quantity demanded exclusively to the fact that the consumer’s income has changed. The purpose of Economic Theory is to make us aware of the areas of our ignorance. Difference Between Causation and Correlation In order for us to infer that government action X causes societal effect Y, three conditions must hold: 1. X must precede Y 2. The cause and effect must be correlated. The relationship can either be negative or positive but if Y does not change when X changes than X cannot cause Y. 3. Other explanations for correlation must be eliminated. In other words any other influences on Y which are call factors Z must be ruled out before attributing X as the cause. Consider this: Unemployment insurance, a program under which the government makes payments to people who are out of work. A question that arises is whether increasing the payments leads to higher and longer spells of unemployment. Suppose you collect data on UI benefits from groups, some of which received high benefits and low benefits. We refer to those who received high benefits as the Treatment Group because they received the treatment being evaluated. The low benefit group is called the Control Group. Biased Estimate– An estimate that conflates the true casual impact with the impact of outside factors. In order to eliminate bias and rule out other factors the counterfactual must be looked at. Econometrics— The statistical tools used to analyze economic data. Tools of Normative Analysis (R&G Ch.3) Welfare Economics— The branch of economic that evaluates the social desirability of alternative economic states. Edgeworth Box— A device used to depict the distribution of goods in a two goodtwo person world. Pareto Efficient— an allocation of resources that cannot make one person better off without making someone else worse off. Pareto Improvement— an allocation of resources that makes one person better off without making another person worse off.
Are you sure you want to buy this material for
You're already Subscribed!
Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'