In this presentation, I made a quick explanation of Chapter 9 of the Public Finance Course.

1. Revenue Structure Decision Making
Chapter 9
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2. Excess Burden
Distributional Effects of Tax Structure
Impact of Debt on Future Generations
Alternative Ways to Financing Govt.
Activities
Factors Determined the Actual Level of Real Capital Formation Without
Full Employment Situation
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3. Excess Burden
The amount of utility as measured in money that is lost by
taxation.
In economics, the excess burden of taxation, also known as the
deadweight cost or deadweight loss of taxation, is one of the
economic losses that society suffers as the result of taxes or
subsidies.
©Mohammad Saiful

4. Distributional Effects of Tax Structure
We can assess the distributional effects of one ta or of the tax system
as a whole.
• The overall Incidence is more important than the effects of single
taxes.
• But introducing progressive taxes may improve regressive systems.
• It Is still important to focus on the economic incidence of taxes , not
the formal incidence.
©Mohammad Saiful

5. Impact of Government Debt on Future
Generation
The idea that government debts are a burden on future generations is not only dominant in the public and
political discourse but also consistent with the academic economic perspective. According to the Barro-
Ricardo equivalence theorem, the debt burden remains with the present generation only under highly
restrictive assumptions. However, these arguments are rendered obsolete by capitalization of government
debts into property prices. As government debts have to be served or repaid, they are a constraint on future
politics. Thus, present debts reduce the future attractiveness of a jurisdiction. This induces future property
prices to decrease, which is anticipated in today’s markets and reflected in present property markets.
Consequently, present debts are a burden not on future generations but on present property owners.
©Mohammad Saiful

6. Capital Formation
Capital formation is a term used to describe
the net capital accumulation during an
accounting period for a particular country, and
the term refers to additions of capital stock,
such as equipment, tools, transportation assets
and electricity.
Capital formation is a concept used in macroeconomics,
national accounts and financial economics. Occasionally it
is also used in corporate accounts. It can be defined in three
ways: It is a specific statistical concept used in national
accounts statistics, econometrics and macroeconomics.
©Mohammad Saiful
Creation of
Savings:
Mobilization
of Savings:
Investment of
Savings:
process of capital formation
consists of the following three
stages:

7. Distribution of the Burden of Government Finance
©Mohammad Saiful
Benefit Principle: The benefit principle
argues that true means of financing govt.
supplied goods and services should be linked
to the benefits that citizens to received from
government. From the point of view these
who favor the benefit approach fees and
charges are ideal form of benefit of govt.
finance.
Ability to Pay: Another way to appraise the equity of
a tax system is known the ability to pay doctrine
which states that taxes must be levied on a person as
per to how good that individual can bear the burden.
Taxes on Business: All taxes formally incident on
business will have their final incidence on
customers, shareholder and employees, like;
Sales taxes
Profit taxes
Asset taxes

8. Alternative Ways to Financing Govt.
Activities
©Mohammad Saiful
In general, there are three primary ways that
governments can raise money:
Taxation–they legally require their citizens to hand it
to them under the threat of coercion.
Borrowing–they request an amount of money and
issue bonds to those who give it to them, promising to
repay the money with some amount of interest. These
bonds can be held by both citizens and foreigners.
Printing–they print money and put it into the
government’s account either directly or indirectly.

9. Criteria for Evaluating Alternative Methods
of Government Finance
Equity
Efficiency
Administrative
Case
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