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Public Finance And Public Policy Gruber Solutions Pdf

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There are many regulations of academic honesty of your institution to be considered at your own discretion while using it. Public Finance and Public Policy, 5th Edition… tax from such falsification. New York: Worth Publishers, After developing individual However, providing adequate funds for education is not always of the economy.

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Questions and Problems 1. Many states have language in their constitutions that requires the state to provide for an adequate level of education spending. What is the economic rationale for such a requirement? There are two economic rationales for government provision of a good or service: market failure and redistribution. A market failure argument for state provision of education would be that an educated population benefits society generally because, for example, welleducated individuals have better job prospects and are therefore less likely to commit crimes.

Each person who receives an education receives a private benefit e. In the absence of public provision of education, self-interested people would acquire less-than-optimal levels of education because they would not take into account its external benefit. Public education can correct this market failure. An argument can also be made that public education is redistributive because it increases the human capital of all students regardless of their individual economic status.

How has the composition of federal and state and local government spending changed over the past 40 years? What social and economic factors might have contributed to this change in how governments spend their funds? Since , there has been a marked shift of federal spending away from defense spending and toward spending on Social Security and health care. Health spending has also increased as a fraction of state and local spending, more than doubling over the last 40 years.

Otherwise, the composition of the state and local spending has been relatively stable over that time. The increases in expenditures on Social Security and health care reflect the aging of the population.

As the baby boom generation has aged, it has had a greater need for these kinds of spending. Furthermore, this generation has played an increasingly important role in the political process, which has allowed them to win increases in spending directed toward their interests.

The relative decrease in defense spending may have been influenced by the collapse of the Soviet Union and the end of the cold war. Some goods and services are provided directly by the government, while others are funded publicly but provided privately.

What is the difference between these two mechanisms of public financing? Why do you think the same government would use one approach sometimes and the other approach at other times? Direct public provision of a good or service occurs when the government itself produces the good or service.

Police forces and military are examples of direct provision. Public financing of private provision of goods and services occurs when the government wishes to increase the provision of a good or service, but it does not want to directly involve itself in its provision. An example is when the government hires private companies to build or repair roads, or when the government purchases military aircraft from private companies instead of building them itself.

Public funding for private provision is appealing relative to direct public provision whenever the private market can produce the goods or services more efficiently than the government. This is likely to be the case where there is an existing market or industry for the good or service, especially when that market is competitive.

When there is no existing market for a good or service provided by the government, or when that market is characterized by an imperfectly competitive industry, there may be a stronger case for direct provision although it is important to recognize that direct provision can also suffer from efficiency failures. There may be national security concerns related to private provision of certain goods and services, especially those performed by the military and police forces.

The government is more likely to provide these goods and services directly. Why does redistribution cause efficiency losses? Why might society choose to redistribute resources from one group to another when doing so reduces the overall size of the economic pie? Redistribution can cause efficiency losses if there are behavioral responses to the redistribution system. The government might raise money to fund redistribution by imposing a tax on labor income, and this might cause a reduction in the labor supply.

Similarly, generous unemployment benefits might induce some who are out of work to remain unemployed. Despite these possible efficiency losses, we collectively choose to redistribute wealth.

Some reasons for redistribution are that people have a taste or preference for a certain degree of economic equity; that the existence of a large or visible underclass is somewhat discomforting or threatening; that people are risk averse and so are willing to pay for a safety net in case they or their families ever need assistance; and that humans are naturally empathetic. In a country with many very poor people, redistribution from the few rich to the many poor may make the majority of people better off, even if it reduces the overall size of the pie.

A democratic process may therefore lead to the occurrence of this sort of redistribution. Consider the four basic questions of public finance listed in the chapter. Which of these questions are positivequestions that can be proved or disprovedand which are normativequestions of opinion? Explain your answer.

The four basic questions of public finance: 1. When should the government intervene in the economy? The word should suggests that this is a question about which opinion will vary, so it is normative. How might the government intervene?

This question is positive. It asks: How does the government actually intervene now, and how might it intervene in the future? One can check whether a government might intervene in a particular way directly by examining the behavior of existing and future governments.

What is the effect of those interventions on economic outcomes? Economic effects can be measured and thus are not a matter of opinion, so this question is positive. Why do governments choose to intervene in the way they do? This is a factual positive question. It may be difficult to directly observe the answer, but one can potentially learn about the motivations behind a governments interventions by looking at patterns of behavior over time.

One rationale for imposing taxes on alcohol consumption is that people who drink alcohol impose negative spillovers on the rest of societyfor example through loud and unruly behavior or intoxicated driving. If this rationale is correct, in the absence of governmental taxation, will people tend to consume too much, too little, or the right amount of alcohol?

People demand goods primarily on the basis of their own enjoyment of that good. They tend to underweight the impact of their consumption on the well-being of others. In the absence of taxes on alcohol, people will tend to consume too much of it. That is, they will tend to consume more than they would if they took the harm they cause others into account. What is the role of the Congressional Budget Office? Why is independence and impartiality important when conducting empirical analyses?

The CBO provides economic analyses of proposed legislation, particularly estimates of the cost of proposed projects. To do this accurately and to provide the best possible advice to Congress, the CBO must carefully consider all the economic effects of a proposal. A politically motivated CBO might be tempted to understate some costs or overstate others in order to influence legislation.

Discuss the direct and possible indirect effects of such a policy. There would be two direct effects of this policy. Second, it would probably encourage additional students from low-savings families to attend college. A potential indirect effect of this policy would be to reduce the savings of other familiesfamilies that were saving money for a college education but would stop doing so when they could anticipate getting a free ride if they dont save.

The country of Adventureland has two citizens, Bill and Ted. Bill has a private legal business. Ted works a manufacturing job. The accompanying table summarizes the three possible policies.

Does either tax policy raise social welfare? Are either of the policies obviously less than optimal? Explain your answers. Whether or not the policies raise social welfare depends on the societys taste for redistribution. Indeed, either of the policies makes Ted better off and makes Bill worse off than the status quo of no taxes, so if society deems it sufficiently important to redistribute to Ted, then either policy would raise social welfare.

If society cares about only the size of the pie, however, then both policies would lower social welfare. Advanced Questions In the United States, the federal government pays for a considerably larger share of social welfare spending that is, spending on social insurance programs to help lowincome, disabled, or elderly people than it does for K12 education spending.

Similarly, state and local governments provide a larger share of education spending and a smaller share of welfare spending. Is this a coincidence, or can you think of a reason for why this might be so? Local control is often considered more important for education than for other services because there may be regional variations in curriculum preferenceswhether to teach the theory of evolution, for example.

There may be fewer regional variations in preferences related to social programs, however, so people may be more willing to give up local control over these programs.

Another possible explanation for federal control of social welfare programs is jurisdiction shopping. If social insurance benefits varied substantially among states, people might move from one to another to avail themselves of more generous benefits. The urban African-American community is decidedly split on the subject of school vouchers, with their leaders comprising some of the most vocal proponents and opponents of increased school competition.

Why do you think this split exists? This community contains a disproportionate number of poor families, with many students attending substandard schools. Proponents of the voucher system may believe that it will allow them to send their children to better schools or that competition will encourage their local schools to improve in order to retain students who would have a choice of schools under the voucher system.

Opponents may view it as a threat to neighborhood schools, fearing that if students take their vouchers and leave, inner-city schools may become even more impoverished. Philosophically, some proponents believe that market competition can solve a wide variety of problems, while some opponents are suspicious of the market systemat least as applied in the context of educationpossibly viewing it as an institution that favors those with more money to spend in the marketplace.

Many states have constitutional requirements that their budgets be in balance or in surplus in any given year, but this is not true for the U.

Why might it make sense to allow for deficits in some years and surpluses in others? Time-series graphs illustrate one striking reason to allow for deficits: during World War II the federal government spent far more than it took in.

Like a family, a government sometimes faces unforeseen emergencies that require it to borrow. Had the United States been constrained by a balanced budget requirement at the time of World War II, the outcome of the war might have been very different. The family metaphor is relevant for a second reason:.

Public Finance and Public Policy

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Jonathan Gruber Public Finance And Public Policy Fifth Edition Pdf

This fifth edition is being released at the right moment, as we are at the start of the new EU programming period No need to wait for office hours or assignments to be graded to find out where you took a wrong turn. He has published more than research articles and has edited 6 research volumes.

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We are at a pivotal point in history with respect to the role of government in the U. S, with fundamental disagreements over enormous government policies that are shaping our lives. In , the most significant health care reform in decades, the Affordable Care Act, passed with no Republican support; eight years later it has been significantly weakened and under attack as alternatively too intrusive, and not sufficiently ambitious. These are just two examples of the debates roiling our state, local and federal governments about the proper role of government. Should the government intervene to combat global warming, and if so how?

Questions and Problems 1. What is the relative price of a gallon of gas, in terms of bus trips? A commuter could exchange 2. One way to sketch a linear demand function is to find the x Q and y P intercepts. Price elasticity is the percent change in the quantity purchased divided by the percent change in price. To calculate these percentage changes, divide the change in each variable by its original value.

You pay sales taxes on most of the goods you purchase. If you smoke or drink or drive a car, you pay taxes on cigarettes, alcohol, and gasoline. If you work, you may pay income and payroll taxes. What does the government do with the taxes it collects?

Public Finance and Public Policy - Solutions Manual

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