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Volledige samenvatting Economie van de Publieke Sector (boek & hoorcolleges) - bestuurskunde jaar 2
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[TEST BANK] PUBLIC FINANCE IN CANADA 5TH EDITION BY ROSEN, GAYER, SNODDON.
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Complete Summary of Economics of the Public Sector (including lectures)
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Public Sector EconomicsWeek 1 ~ Introduction & Public sector in an open economy and economic
arguments for public intervention
Chapter 1-2-3
Chapter 1: Introduction
Defining the Field of Study
Public Finance / Public Sector Economics / Public Economics:
The field of economics that analyzes government taxation and
spending
Public Finance and Ideology
Public finance economists analyze not only the effects of actual government taxing and spending
activities but also what these activities ought to be. Opinions on how government should function in
the economic sphere are influenced by ideological views concerning the relationship between the
individual and the state. Political philosophers have distinguished two major approaches:
➢ Organic view of government
This view conceives of society as a natural organism. Each individual is a part of this
organism, and the government can be thought of as its heart. The community is stressed
above the individual. For example, an activity of a citizen is desirable only if it leads to a just
society. The goals of the society are set by the state, which attempts to lead society toward
their realization. A crucial question is how societal goals are to be selected. Proponents of
the organic view usually argue that certain goals are natural for the societal organism. For
example a natural goal is to conquer Europe (Nazi’s). However the meaning of natural is far
from clear.
➢ Mechanistic view of government
In this view, government is not an organic part of society. Rather, it is a contrivance
(verzinsel) created by individuals to better achieve their individual goals. The individual
rather than the group is at center stage.
,The Legal Framework
We have shown how ideology can affect one’s views of the appropriate role of government.
However, to form sensible views about public policy requires more than ideology. One also needs
information about how the government actually functions. What legal constraints are imposed on
the public sector? What does the government spend money on, and how are these expenditures
financed?
• State governments
- Federal constitutional provisions (grondwettige bepalingen)
- The State constitutions
• Local governments
- Derive power to tax and spend from the States
- Fiscal independence of local governments
The Size of Government
• How to measure the size of government:
1. Number of workers in the public sector
This can be misleading. Imagine a country where a few public servants operate a powerful computer
that guides all economic decisions. In this country, the number of government employees certainly
underestimates the importance of government. The number of public sector employees is useful
information, for some purposes, but it does not cast light on the central issue – the extent to which
society’s resources are subject to control by government.
2. Annual expenditures
There are three types of government expenditure:
1. Purchases of goods and services: The government buys a wide variety of items, everything from
missiles to services provided by ecologist.
2. Transfers of income to people, businesses, or other governments. The government takes income
from some individuals or organizations and gives it to others. Examples are welfare programs such as
food stamps and subsidies paid to farmers for production.
3. Interest payments. The government often borrows to finance its activities and, like any borrower,
must pay interest to its creditors.
The federal government itemizes its expenditures in a document referred to Unified budget:
as the unified budget. The document that includes
all the federal government’s
revenues and expenditures.
Some believe that the economic costs of government
regulations should be published in an annual regulatory Regulatory budget:
budget. Unfortunately, computing such costs is exceedingly An annual statement of the costs
difficult. It is hard to estimate the impact of government- imposed on the economy by government
mandated safety procedures in the workplace on production regulations. (currently, the government
costs. In view of such problems, it is unlikely there will ever be publishes no such budget.)
an official regulatory budget.
,Chapter 2: Tools of positive analysis
The Role of Theory
Economic theory is a useful starting point for analyzing the impact of government policy because it
provides a framework for thinking about the factors that might influence the behavior of interest.
The whole point of model building is to simplify as much as possible, so one can reduce a problem to
its essentials. A model should not be judged on the basis of whether or not it is 100 percent accurate,
but on whether it is plausible, informative, and offers testable implications. There are limitations of
models. The theoretical model helps understand the relationship between for example income taxes
and labor supply, but only empirical work – analysis based on observation and experience as opposed
to theory – can tell us how labor force behavior is affected by changes in the tax system.
Another important function of economic theory is to generate hypotheses whose validity can be
assessed through empirical work.
• Empirical analysis
Causation vs. Correlation
In order for us to infer that government action X causes societal effect Y, three conditions most hold:
1. The cause (X) must precede the effect (Y). This makes sense, because a causal relationship is only
possible if the cause leads to (that is, precedes) the effect.
2. The cause and effect must be correlated. Two events are correlated if they move together. The
correlation may be positive (X and Y move in the same direction) or negative (X and Y move in
opposite directions). If Y does not change when X does, then X cannot be causing Y.
3. Other explanations for any observed correlation must be eliminated.
Statistical analysis:
Correlation: Treatment group: Control group:
A measure of the extent to The group of individuals The comparison group of
which two events move who are subject to the individuals who are not
together. intervention being studied. subject to the intervention
being studied.
Experimental Studies
Biased estimate: Counterfactual: Experimental (or randomized) study:
An estimate that conflates The outcome for people in An empirical study in which individuals
the true causal impact with the treatment group had are randomly assigned to the
the impact of outside they not been treated. treatment and control groups.
.factors
, Pitfalls of Experimental Studies
• Ethical issues
• Technical problems
• Response bias
• Impact of limited duration of experiment
• Generalization of results to other populations, settings, and related treatments
• Black box aspect of experiments
Observational Studies
Experimental studies are simply out of the question for many important issues. Observational study:
Consider again the critical question of how tax reductions affect labor supply. An An empirical study that
experimental study of this issue would require randomly giving some people tax relies on observed data
cuts and other not. Even if this were legally and politically possible, we would that are not obtained from
still face the problem that the people in the tax cut group would know that they an experimental setting.
were part of an experiment, and this could affect their behavior. Under these
circumstances, instead of experiments, economists rely on observational studies, which use data
obtained by observing and measuring actual behavior outside of an experimental setting.
• Sources of observational data:
- Surveys
- Administrative records
- Governmental data
• Econometrics
- The statistical tools for analyzing economic data
- Regression analysis
Conducting (het dirigeren van) an Observational Study
• L = α0 + α1wn + α2X1 + … + αnXn + ε
- Dependent variable
- Independent variables
- Parameters
- Stochastic error term
• Regression analysis
Regression line: Standard error:
The line that provides the A statistical measure of how much
best fit through a scatter of an estimated regression coefficient
data points. might vary from its true value.
Types of Data
Cross-sectional data: Time-series data: Panel data:
Data that contain Data that contain Data that contain information
information on entities at a information on an entity at on individual entities at
given point in time. different points in time different points in time.
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