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Summary Chapter 1 - public sector in the economy
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Chapter 1 - public sector in the economy
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CHAPTER 1PUBLIC SECTOR IN THE ECONOMY
Public Economics (Calitz, et al. Chapter 1)
Public economics looks at the role of government in the overall economy
- Government plays a central role in resource allocation and distribution
- Def. = The study of the nature, principles and economic consequences of
expenditure, taxation, financing, and regulatory actions undertaken by the
non-profit government sector of the economy.
Most important tools of the government to influence economic outcomes → called
the instruments of fiscal policy - instruments are
→ expenditure
→ taxation (government income – distinguish between taxes, income, wealth &
goods and services)
→ financing (is the difference between government expenses and revenue,
deficit financing if expenses exceed income)
→ regulatory actions (not providing goods and services, but providing a
framework to ensure everything is done according to the rules)
We look at the analysing the nature and impact of the instruments of fiscal policy.
Instruments of fiscal policy
Expenditure, taxation, financing – entails procurement by the state of private
funds & spending of these funds:
o The use of instruments constitutes the direct mobilisation & allocation
of scarce resources
o The government gets involved directly.
o E.g. spending of income tax on primary healthcare, borrowing of funds
to build an irrigation dam or a highway.
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, Regulation → enacting a law/administratively proclaiming an enforceable
instruction that leads to a different allocate private resources that would apply
in the absence of government.
o The allocation of resources is influenced indirectly
o E.g. regulation of government forcing the manufacturers of vehicles to
install platinum catalysts in the exhaust pipes of vehicles.
Reduces carbon monoxide and regulations that prescribe the
behaviour of natural monopolies (such as electricity supply)
Governing criteria for fiscal criteria on which economic decisions in public
sector are/should be based – efficiency & equity
View of the role of government in the economy
Individualistic Public Interest Developmental State
(Mechanistic (Collective
view) view/Organic view)
Additional Notes Recognizes the Thought to exist state where politics have
supremacy of independently of concentrated sufficient
the individual & individual power,
his/her freedom preferences & goals autonomy, and capacity at
of choice of society the centre of shape, pursue
and encourage the
achievement of explicit
development objectives.
Key Characteristic 1. Maximization 1. Maximisation of Combination of individual &
of individual
(free market social welfare or social interests
welfare
economy) 2. Correcting national interest Selective intervention
Role of market failure 2. Distribution of
Government income
Policy Focus Efficiency of Combating poverty Way in which political &
resource and equity issues economic control is obtained
allocation and (distribution of & exercised
economic income).
growth
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