Summary of the book 'Stiglitz, J. E., & Rosengard, J. K. (2015). Economics of the public sector: Fourth international
student edition. WW Norton & Company”. H1-6, 8-9 & 17. For the field of economics and public finance for B&O Utrecht.
Summary EOF
Chapter 1: defining public sector responsibilities
-mixed economy= where many economic activities are undertaken by private firms, while
others are undertaken by the government
-privatization= converting government enterprises into private firms
-mercantilists= advocated the view that government should actively promote trade and
industry
-laissez faire= the government should leave the private sector alone
-limited government intervention could alleviate the worst problems
-deregulation vs privatization
*reducing the role of government in regulating the economy vs previously government
activities turned over to the private sector
-4 questions:
*what is to be produced
>productions possibilities schedule
^public vs private goods
^figure 1.1 page 14
*how is it to be produced
>produce privately or publicly / more capital and less labour or vice versa / government
policy (such as environmental legislation)
*for whom is it to be produced
*how are these decisions made
>choices are made collectively
-4 stages of analyzation
*describing what the government does
*analysing the consequences of government action
*evaluating alternative policies
*interpreting the political forces that underlie the decisions government makes
-economic models are important in testing out theories
-positive economies= when describing how the economy will change or the effects of
different policies
*concerned with what “is”, with describing how the economy functions
-normative economies= when attempting to evaluate alternative policies
*concerned with what “should be”, with making judgments about the desirability of various
courses of action
*it makes use of positive economics
-economists have to predict how households and firms will react
Chapter 2: measuring public sector size
-federal governmental structure= governmental activities take place at several levels:
federal, state, local
-what distinguishes government from private institutions
*elected vs chosen
, *the government has certain rights of compulsion
-government activities fall into four categories:
*the production of goods and services
*the regulation of subsidization or taxation of private production
*the purchase of goods and services, from missiles to the services of street cleaners
*the redistribution of income
-transfer payments= payments that transfer money from one individual to another but not
in return for goods or services
-an important government activity is the establishment of the legal framework within which
firms and individuals can engage in economic interactions
-nationalization= converting private enterprises into government enterprises
-3 ways in which the government subsidizes private production:
*direct payments to producers
*indirect payments through the tax system
*other hidden expenditures
-government credit= a special type of subsidy, government provision of credit below market
interest rates, in the form of low-interest loans and loan guarantees
-government regulates business activity in an attempt to protect workers, consumers and
the environment; to prevent anticompetitive practices; and to prevent discrimination
-government purchases= amounts spent for goods and services made available to the public
-redistributions programs:
*public assistance programs (poor)
>in-kind benefits= public assistance programs that provide payment only for specific
services or commodities
>cash-programs= provide cash
*social insurance (retired, disables, sick etc.)
>an individual’s entitlements are partly dependent on his or her contributions
-middle-class entitlement programs= the main beneficiaries are the middle class, and
benefits are provided not on the basis of need but because the beneficiaries satisfy other
eligibility standards
-an indicator of the governments effect on the economy:
*using the size of public expenditures relative to the size of the total economy
>standard measure of the size of the total economy is the GDP
-the federal government relies on 5 major forms of taxation
*income tax
*payroll tax
*corporate income tax
*excise tax
*customs tax
-a major source of revenue in other countries is value-added tax
-deficit= the excess of spending over revenues
*it is financed by borrowing
-how to manipulate the budget:
*providing tax credits to businesses
*recording the revenues obtained when assets are sold, but not the cost
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