PUBLIC FINANCE:

1

• PUBLIC FINANCE
• THEORY AND APPLICATION

2
Overview

• What is Public Finance?
• The field of economics that analyzes government
  expenditure and taxation policies.

3
Overview

• Questions we will attempt to answer
• When should the government intervene in the
  economy?
• How does government intervention in markets
  affect the distribution of resources and the
  distribution of income in the economy?
• What level of government Federal, State or
  Local should provide which services?
• How do we determine how effective government
  programs are?
• What determines how much government services are
  provided?

4
Positive Economic Analysis

• Positive Analysis Addresses what is. Uses
  theory and models to predict observable and
  testable tendencies in economic relationships.
• Examples
• Does social security reduce private savings?
• Do minimum wage laws cause unemployment?
• Does local funding of education lead to
  inequities in school funding across school
  districts?
• Does an increase in welfare payments reduce work
  effort?

5
Normative Economic Analysis

• Normative Analysis Addresses what should (or
  ought to) be. Depends on value judgments.
• Examples
• The federal government should privatize social
  security.
• Minimum wages aught to be higher.
• The state should equalize spending per pupil
  across districts.
• Welfare payments should be reduced.

6
The Size of Government
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International Comparisons of the Size of
Government
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Composition of Federal Spending
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Composition of State and Local Spending