Public Ecnomics
Dr. HE Chen
ch1797@sina.com
• Teaching Materials(textbook):
– Randall G. Holcombe. Public Sector
Economics:The Role of Government in The
American Economy. China Renmin University
Press, 2012.
• Commendatory Reference Books:
– 1,John Leach. A Course in Public Economics.
Shanghai University of Finance & Economics
Press, 2005.
– 2,Joseph E. Stiglitz. Economics of the Public
Sector (Third Edition). China Renmin University
Press, 2005.
Doing Research in Public Ecnomics
• Public Finance journals
–
–
–
–
–
International Tax and Public Finance
Journal of Public Economics
National Tax Journal
Public Finance
Public Finance Quarterly
• General-interest journals
–
–
–
–
–
American Economic Review
Journal of Economic Perspectives
Journal of Political Economy
Quarterly Journal of Economics
Review of Economics and Statistics
• Other sources
–
–
–
–
–
Journal of Economic Literature
Brookings Institution’s Studies of Government Finance
Congressional Budget Office reports
National Bureau of Economic Research working papers
Tax Foundation’s Facts and Figures on Government
Finance
• U.S. Government Printing Office publications
–
–
–
–
–
Statistical Abstract of the United States
Economic Report of the President
Budget of the United States
U.S. Census of Governments
Historical Statistics of the United States from Colonial
Times to 1970
• Public Finance data available on internet
–
–
–
–
Resources for Economists on the Internet
U.S. Census Bureau
University of Michigan’s Office of Tax Policy Research
Urban-Brookings Tax Policy Center
Outline：
• Topic 1：The public sector
• Topic 2：Principles for analyzing government
• Topic 3：Discussion: The market system and
individual rights
• Topic 4：Externalities
• Topic 5：Public goods
• Topic 6：Discussion: Public policy toward public
goods
• Topic 7：A theory of collective action
• Topic 8: Taxation(1): positive principles of taxation
•
•
•
•
•
•
•
•
Topic 9: Taxation(2): principles of tax policy
Topic 10：Discussion: The tax system in China
Topic 11: Government budgeting process
Topic 12：Discussion: The reform of tax distribution
in China
Topic 13: Public expenditure: principles of taxation
and redistribution
Topic 14：Discussion: Social security and health
care in China
Topic 15: Fiscal policy and monetary policy
Topic 16：Discussion: Practices of anti-economiccrisis by government
Topic 1：The Public Sector
• The U.S. economy is primarily market
economy, but a significant proportion of its
resources is allocated through the
government----the public sector.
• How about China?
• One goal of this course is to explain how the
government allocates resources.( what does
the government actually do?)
• Another goal is to establish a framework for
analyzing what activities the government
should undertake and how it should pay for
those activities.( what does the government
should do?)
• The study of the public sector will build on
an analysis of the public sector decisionmaking process.
Politics and Ecnomics
• In demacratic countries, governmental
decision are made by some collective
decision-making procedure.( directly or
indirectly)
• What's the problem?
• What are the problems of markets?
– molopolies
– externalities
– imperfect information
– ……
• There are analogous problems in the public
sector
– imperfect information to measure the demand for
public goods
– imbalance between benefits and costs
– some groups can lobby more forcefully
– government bureaucrats may not have incentive
to implement the optimal policy
The Size of Government
• How to measure the size of
government
– Number of workers
– Annual expenditures
• Types of government expenditure
– Purchases of goods and services
– Transfers of income
– Interest payments
• Budget documents
– Unified budget
– Regulatory budget
Relative
to
AdjustingExpenditures
for
State, Local, and Federal Government
Adjusting for
Economy
Inflation
Population
(selected years)
1
2
3
4
Total
Expenditures
(billions)
2005 Dollars
(billions)*
2005 Dollars
per capita
Percent of
GDP
1960
123
655
3,627
24.3%
1970
295
1,201
5,858
28.4%
1980
843
1,749
7,679
30.2%
1990
1,873
2,574
10,289
32.2%
2000
2,887
3,237
11,461
29.4%
2005
3,876
3,876
13,066
31.1%
*Conversion to 2005 dollars done using the GDP deflator
Source: Calculations based on Economic Report of the President, 2006
(Washington, DC: US Government Printing Office, 2006), pp. 280,284,323,379
• international comparisons
– the scope of governmental activity varies
considerably from country to country
– some governments in some countries undertake
manufacturing activities
– some governments provide services as varies as
the production of television broadcasting,
electricity, and telecommunications, and they
own and operate mass transportation such as
airlines, railroads, subways, and bus systems.
Figure 1.1: Government expenditures as a percentage of
Gross Domestic Product (2005, selected countries)
0.6
0.5
0.4
0.3
0.2
0.1
United
States
0
Sweden
France
Germany
United Kingdom
Canada
Japan
Australia
Source: Organization for Economic Cooperation and Development [2006]. Figures
are for 2005.
Figure 1.2: Composition of federal expenditures (1965
and 2005)
100%
90%
Note increase in
Social Security,
Medicare and
Income Security
80%
70%
Other
Net interest
60%
Note
Social security
decline in
Defense
Income security
50%
Medicare
Health
40%
Defense
30%
20%
10%
0%
1965
2005
Source: Economic Report of the President [2006, p. 377].
Figure 1.3 Composition of state and local expenditures
(1965 and 2002)
100%
90%
80%
Increase in
public
welfare
Decline in
highways
70%
60%
Other
Public welfare
50%
Highways
Education
40%
30%
20%
10%
0%
1965
2002
Source: Economic Report of the President [2006, p. 383].
Figure 1.4: Composition of federal taxes
(1965 and 2005)
Social insurance
and individual income
tax have become
more important
Corporate and other
taxes have become
less important
100%
90%
80%
70%
60%
Other
Social insurance
50%
Corporate tax
40%
Individual income
tax
30%
20%
10%
0%
1965
2005
Source: Economic Report of the President [2006, p. 377].
Figure 1.5: Composition of state and local
taxes (1965 and 2002)
100%
90%
Individual tax
more important
80%
Other
70%
Grants from
federal
government
Corporation
tax
60%
50%
Inidividual
income tax
40%
Sales tax
30%
Property tax
20%
10%
Property tax
less important
0%
1965
2002
Source: Economic Report of the President [2006, p. 383].