Public finance


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Public finance

  1. 1. Public Finance Lecture #1
  2. 2. Factors that affect the provision and production of public goods• Relative cost of private versus public production• The capacity and willingness of the private sector to undertake production• The case of the so called natural monopolies• Decreasing cost industries• The community’s attitude toward direct government production of goods and services
  3. 3. Goals or objectives of a Free enterprise system• To strengthen economic freedom – free markets – Private property – No more monopoly or cartel – Variety of choices
  4. 4. Factors that affect the trend and pattern of government expenditures• Increasing demand of the people for more and better government services• Urgent necessity of providing food, clothing, housing, education, employment and health• Country’s expanding population/growth in population• Improving standard of living/lifestyle• Inflation• Increasing demand for economic and social development projects• Changes in taste and preferences
  5. 5. • Economic Efficiency – Resource is optimally allocated minimizing waste and inefficiency – Goods and services are produced at lowest possible cost
  6. 6. • Economic Growth – Positive level of production of goods and services – Economic growth is brought about by technological innovation and positive external forces
  7. 7. • Economic Stability – Absence of excessive fluctuations in the economy – Constant output growth low and stable inflation – Stability of the value of money
  8. 8. • Economic Security or financial security – Stable income or other resources to support a standard of living now and in the future – Probable continued solvency – Predictability of the future cash flow of a person or other economic entity – Employment security or job security
  9. 9. Functions of Public Finance• Allocation Section – What goods and services are to be produced • Education • Road • Building • Construction of power facilities • Low cost housing • Subsidies to consumers • How much of each good or service to be provided
  10. 10. • What method of production – Goods and services should be produced directly by the government – Public control – Public supervision – Management of private production should be sufficient – Production should be left completely in private hands
  11. 11. • Who is to pay and by how much for goods and services? How to finance? – Borrowing – Printing of money – Sale of goods and services – Through taxation
  12. 12. Stabilization Section• Maintaining a high level of resource utilization that is full employment of all factors of production and stable value of money
  13. 13. Distribution Section• This relates to the determination and attainment of a proper state of income distribution.
  14. 14. Actual Government Expenditures• Economic Development – Agriculture – Transportation and communication – Commerce and industry – Other economic development
  15. 15. Social Development• Education• Public Health and medical care• Labor and welfare
  16. 16. National Defense• Peace and Order• National Defense
  17. 17. General Government• General Government• Legislative Services• Administration of Justice• Pensions and Gratuities