Vidar Christiansen
Econ 4620 Public economics: Seminar assignment for week 46.
Problem 1
In a country it’s being proposed that some private good should be provided by the
government. Discuss which of the following arguments that you will consider valid
arguments for this case. (You may qualify your answer when necessary).
a. The good is very important for most people.
b. The good affects people’s ability to work
c. The good generates positive externalities.
d. In a private market suppliers may go bankrupt.
e. The good is produced under increasing returns to scale.
f. The good is a health service.
g. The transactions costs in the market are huge.
h. The good is important for poor people.
Problem 2.
Suppose that a population consists of high-skilled and low-skilled agents and a tax-transfer
scheme is used to raise revenue and redistribute income in favour of the low-skilled. A private
good is publicly provided. Suppose that the mimicker has a small demand for the good in
question compared to the genuine low-skilled type.
a) Explain why public provision of a fixed amount of the private good can alleviate the selfselection problem.
b) Would you allow topping up of the good in question?
c) Suppose that the mimicker has a large demand for the good under survey. Would you then
allow topping up (assuming that disallowing it is feasible)?
d) Discuss some arguments that may be relevant for the choice between public production and
private production (contracting out) of a good that is publicly funded.
Problem 3
Define the following concepts:
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Depreciation allowance
Declining balance method
Rate of return allowance
Marginal cost of public funds
Pigouvian tax
Double dividend (in an externality context)
Natural monopoly
The following problems are related to the topics to be addressed in the lecture on November
16. You may try and think about them, after reading the chapter on Fiscal Competition.
Problem 4
Suppose that a country has two levels of government; a state level and a municipal level that
both levy taxes and provide goods. Do you see any reasons why the state should not leave to
the municipal level to determine as it wishes
a) expenditures on daycare for children,
b) welfare payments (sosialhjelp),
c) environmental policy,
d) local taxes?
A brief verbal discussion is sufficient.
Problem 5
Discuss the following statement:
If a jurisdiction increases its tax, residents will move out.