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Fundamental Principles of Public Finance. Troy University PA6650- Governmental Budgeting Chapter 1. What’s the Difference Between Public and Private Sector?. Similarities & Differences Sources of funds What funds get spent on Decision making Oversight and management control Legal issues

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fundamental principles of public finance

Fundamental Principles of Public Finance

Troy University

PA6650- Governmental Budgeting

Chapter 1

what s the difference between public and private sector
What’s the Difference Between Public and Private Sector?
  • Similarities & Differences
    • Sources of funds
    • What funds get spent on
    • Decision making
    • Oversight and management control
    • Legal issues
    • Freedom of information
    • Measure of success
why do governments exist
Why Do Governments Exist?
  • Governments make rules for markets
  • Governments enforce rules
  • Governments provide public goods

WHY?

market failure
Market Failure
  • Governments exist to provide valuable services that businesses or individuals are unwilling or unable to provide independently
the tragedy of the commons
The Tragedy of the Commons
  • New England – 1600s
  • Grazing of animals in the town square
  • Commons were overgrazed and destroyed

Can you think of a similar situation today?

the elements of nonappropriability
The Elements of Nonappropriability
  • Concepts
    • Exhaustion or Rivalry
    • Exclusion
    • Alternate use and joint use
  • 2 big questions
    • Is the exclusion of the goods feasible?
    • Is consumption individual or joint?
nonappropriability
Nonappropriability
  • Nonexhaustion/nonrivalry (air
  • Free Riders
externalities
Externalities
  • Positive and Negative Unintended Consequences
  • Good outcomes
    • Vaccines result in less exposure to those who have not been innoculated)
  • Bad outcomes
    • (alligators in the swamp after draining)
failure of competition
Failure of Competition
  • Incomplete markets / imperfect information
    • Government testing of drugs, flood insurance
    • Adverse selection (HMOs rejecting cancer clients)
    • Moral hazard (flood insurance to those in flood zones)
  • Economic stabilization
    • Preventing unemployment, inflation
    • Increasing standard of living
  • Redistribution
    • Corrects perceived injustices
privatization
Privatization
  • Arguments supporting
    • Smaller government
    • Operating efficiency and response to clients
    • Cash
  • Arguments against
    • Loss of government capability
    • Possible monopolistic manipulation
building social decisions from private preferences
Building Social Decisions from Private Preferences
  • Public choice theory – individuals are the best judges of their own well being
  • The welfare of the community depends upon the welfare of individuals in that community
  • Pareto Principle – If at least one person is better off from a policy action and no person is worse off, then the community as a whole is better off and the action should be taken
  • Tale of 3 projects – Pages 17 and 18
political science
Political Science
  • Difference between liberal and conservative?
  • Differences between capitalist, socialist, and communist?
politics representation and government finance
Politics, Representation, and Government Finance
  • Parties don’t know what citizens want
  • Citizens don’t know what government has done
  • There is an overall scarcity of knowledge
politics representation and government finance16
Politics, Representation, and Government Finance
  • Some people are more politically important than others
  • Specialists appear
  • Imperfect information results in bribery
  • Voters make uninformed choices
the layers of government
The Layers of Government
  • Express Powers
  • Implied Powers
  • Tenth Amendment
  • Dillon Rule / Home Rule
  • Hierarchy of Power
political science quiz
Political Science Quiz
  • Republic
  • Democracy
  • Representative Democracy
  • Unitary government
  • Source of federal power
  • Source of state power
  • Source of local power
do you know your government
Do You Know Your Government
  • Cabinet members
  • Vice President / Speaker of House
  • U.S. Senators
  • U.S. Representatives
  • Supreme Court Justices
  • Other agencies
conclusion
Conclusion
  • Why do governments exist?
  • What are the objectives of governments?
  • What are the results of our system of government?
  • How are federal/state/local governments constrained?