Public Finance公共财政学-英文版 (复旦 Li Du).ppt

1、Public Finance,Instructor : Dr. Li DuSchool of Economics,Fudan University E-mail: Tel(O):65643530 PPT downloadable here 2/username:duli1972,Readings:Books,Economics of the Public Sector,by Joseph E. Stiglitz,3rd edition Musgrave, R.A. and Musgrave P.B., Public Finance in Theory an

2、d Practice, McGraw-Hill Book Company, 1984,1989.(Chinese version: 美国财政理论与实践/中国财政经济出版社),Lectures on Public Economics, by Stiglitz, Joseph E. and Atkinson, Anthony B., McGraw-Hill Book Company, 1980. (Chinese version: 公共经济学/上海三联书店) 现代公共财政学/胡庆康、杜莉/复旦大学出版社,Readings:Journals,中国社会科学 经济研究 经济学动态 财贸经济 经济社会体制

3、比较 中国经济问题 世界经济文汇,财政研究 税务研究 财经研究 财经理论与实践 税务与经济 财经科学 当代财经 涉外税务,Relevant websites,China Ministry of F China National Bureau of Statistics China State Administration of taxation U.S. The T U.S. Internal Revenue S U.S.Congressional budget ,www.imf

4、.org I ,Introduction,Subjects Background,Definition of “Public finance”,The branch of economic theory concerned with the revenue-raising and spending activities of public sector,namely,the government.,Subjects of “Public Finance”,The finance

5、of public sector. Public sector the government Finance revenue and expenditure Not just relate to money(financial), but to the use of real resources Another label:public sector economics,Definition of government by economists,Also an economic entity Characteristics in common with private sectorconsu

6、minginvesting Distinct Characteristics in comparison with private sector To maximize the social welfare Collective decision-making Figure,Different views on social welfare maximization,Organic view of governmentfocus:the community“An activity of a citizen is desirable only if it leads to a just soci

7、ety Mechanistic view of governmentfocus:individuals“The government is for the benefit of individuals.Still different views,Branches for the mechanistic view of government,Libertarians:minimal government Social democratssubstantial government intervention required,Specific subject of public finance,M

8、icroeconomic function of government ,esp. governmental spending and revenue-raising activities Macroeconomic function-to be covered in separate courses such as “Macroeconomics” Regulatory activities- to be covered in the course on “industrial organization ”,The scope of public sector,Central governm

9、ent Central government+local governments Consolidated non-financial public sector Central government+local governments+non-financial public enterprises Consolidated total public sector Central government+local governments+non-financial public enterprises +public financial institutions,Government str

10、ucture in China,中央政府+地方政府(省、地市、县、乡)。 国务院下设机构： 28部委：外交部、国防部、国家发展与改革委员会、司法部、财政部、商务部、卫生部、中国人民银行、审计署直属特设机构 ：国有资产监督管理委员会直属机构(18)：海关总署、税务总局、国家食品药品监督局、国家工商总局办事机构(4):国务院侨务办公室、国务院法制办公室、国务院研究室直属事业单位(14):新华社、中科院、中国社科院、国务院发展研究中心、银监会、证监会、保监会、全国社会保障基金理事会、国家自然科学基金理事会部委管理的国家局10个:信访局 、粮食局、邮政局、文物局、保密局 广义地说，中国政府还包括各级人

11、民代表大会、各级政治协商会议、各级人民法院、各级人民检察院等。,A brief review for the study of public finance,1770s-1920s Public Finance 1930s-present Public Sector Economics(Modern Public Finance) In China,Public Finance,Introduction1776 ,The Wealth of nations ,by Adam Smith （Mercantilism） Major subjectsManagement of governmenta

12、l revenue and expenditure Economic backgroundRelatively narrow aspects of governmental interventionTextbook pp5-6,Mercantilism,18th century,mercantilist Government should actively promote trade and industry,19th century,Laissez faire John Stuart Mill Nassau Senior Governmental ownership of means of

13、production Karl MarxRobert Owen,Public Sector Economics,Great depression(1929-1933) Introduction of public economics 1959,Musgrave R.A. “The Theory of Public Finance: A Study in Public Economy”1965,Johansan L. “Public Economics”1972, Journal of Public Economics. Major subjects Effects of public reve

14、nue and expenditure on the overall economyThe reasonable scope of governmental economic activities Economic background Management and manipulation of the overall economy by the government,Great depression,Unemployment rate :25% Output drop:one third,Public finance in China“财政学”vs. “公共财政学”,Before the

15、 1978 economic reform “财政学” After the 1978 economic reform,esp. since 1994 “公共财政学” or “公共经济学”,Why study “Public Finance”,Economic influences of fiscal revenue and expenditure Fiscal revenue as a percentage of GDP (textbook pp13)Effects of fiscal revenue and expenditure on behaviors or benefits of en

16、terprises and households,General government total tax and non-tax receipts(% of GDP),General government financial balances,Fiscal revenues/expenditures affecting enterprises/households,Fiscal revenueTaxes（Income taxes,Goods and services taxes,Wealth taxes）Public debts Fiscal expenditurePurchasing ex

17、penditure（Public consumption,public investment）Transferring expenditure（Social security expenditure,fiscal subsidies） Figure,Why study “Public Finance”,Role of “public finance” in economics Key economic questions What is to be produced?Public or private goods How is it to be produced?Within the publ

18、ic sector or the private For whom is it it to be produced?Who will benefit from government programs and who will pay the taxes How are these decisions made?How are collective decisions made?,Legislative measures,administrative measures,economic measures,fiscal measures,monetary measures,Relevant fac

19、ts in China,Budgetary revenue as a percentage of GDP Magnitude of budgetary expenditures Composition of budgetary expenditures Composition of taxes Issuance and balance of government debts,Chinas budgetary revenue as a percentage of GDP,Ratio of central fiscal revenue to local fiscal revenue,Composi

20、tion of taxes in China:2004,Composition of Chinas budgetary expenditures,Issuance and balance of government debts,Our Logic,Role (or function) of public finance Public expenditure Public revenue Intergovernmental fiscal relations,Normative vs. Positive Analysis,Normative analysis:to tell what should

21、 beDetermining the desirability of economic states or policiesTo evaluate the facts(Textbook:ch2) Positive analysis:to tell what is going on Determining the effects of policiesTo find the facts(Textbook:ch3),Part I Role of public finance,Efficiency and equity Market failure Role of public finance,Cr

22、iteria for social welfare improvement,Efficiency Equity,Efficiency,Pareto optimum Pareto improvement,Pareto Optimum,An allocation of resources at which the only way to make one person better off is to make somebody else worse off. “Pareto Optimum” is equivalent to “efficiency” in economics. Named af

23、ter Italian economist Vilfredo Pareto(18481923) 。,Pareto Improvement,A reallocation of resources which makes at least one person better off without making anybody else worse off .,Figure: Pareto Optimum,Condition for production efficiency,For every product,the output is maximized,given the outputs o

24、f other products. The marginal rates of technological substitution of one factor for another factor employed in the production of all products are equal：MRTSXLK= MRTSYLK = MRTSZLK = Figure: two factor-two good case,Production efficiency-Figure,Condition for exchange efficiency,For every consumer ,th

25、e utility level is maximized,given the utility levels of other consumers. The marginal rates of substitution of one commodity for another commodity for all consumers are equal：MRSAXY= MRSBXY = MRSCXY = Figure:two good-two person case,Exchange efficiency-Figure,Condition for product mix efficiency,An

26、 efficiently produced mix of products maximizes the utilities of consumers. Marginal rate of transformation in production is equal to marginal rate of substitution in consumption for every two products： MRSXY= MRTXY Figure,Product mix efficiency-Figure,Condition for Pareto efficiency: one good case,

27、Total net social benefits for every commodity or service is maximized. Marginal social benefits equal to marginal social costs for every commodity or service. MSB=MSC Figure,Pareto efficiency: one good model,Summary of efficiency:utility possibilities curve,Equity,Lorenz curve Gini coefficient,Socia

28、l welfare function,Embody societys views on the relative deservedness of its members. W=F（U1，U2，U3，Un）social welfare is some function of each individuals utility. Social indifference curve,Social indifference curve,Different views on social welfare function,Utilitarianism(Jeremy Bentham)W=UA+UB Rawl

29、sianism(John Rawls)W=Min(UA ,UB ) only the welfare of the worst-off individual matters,no trade-off Egalitarianism,Utilitarianism,Rawlsianism,Egalitarianism,Welfare-maximizing point,Tradeoff between equity and efficiency,Tradeoff between equity and efficiency Fixed total income Variable total income

30、,Redistribution:fixed total income(no tradeoff),Redistribution:variable total income(tradeoff),Competitive market and Economic efficiency,Law of invisible hand by Adam Smith,Competition would led the individual in the pursuit of his private interest (profits) to pursue the public interest as if led

31、by an invisible hand.,First fundamental theorem of welfare economics,Pareto-efficient allocation of resources emerges when: (1)All producers and consumers act as perfect competitors; (2)A market exists for each and every commodity. OrPerfect competitive markets leads to Pareto efficiency automatical

32、ly.,Second fundamental theorem of welfare economics,Society can attain any Pareto-efficient allocation of resources by making a suitable assignment of initial endowments and then letting people freely trade with each other in competitive markets.,Features of perfect competitive market,(1) Numerous s

33、mall consumers and producers (facing the same prices).(2) Homogeneous products.(3) Perfect mobility of factors. (4) Perfect information or knowledge.,Features of perfect competitive market,(1)Consumers and producers are all rational. (2)Clearly defined and effectively protected property rights. (3)P

34、rivate ownership of resources.(4)No externality.(5)No increasing return of scale.,How Competitive market leads to efficiency,Exchange efficiency According to theory of consumer choice:MRSAXY = MUAX/MUAY = PX/PY,MRSBXY = MUBX/MUBY = PX/PY so MRSAXY= MRSBXY = MRSCXY = ,How Competitive market leads to

35、efficiency,Production efficiency(Please make the derivation yourself) Product mix efficiency MRSXY= PX/PY ( by the consumer theory) MC X=PX ( by the firm theory)MC Y= PY ( by the firm theory) soMRTXY = MCX/MCY = PX/PY = MRSXY,How Competitive market leads to efficiency,One good case: Ps= MCPd = MUwhe

36、n Ps= Pd ，MC = MU Without externality， MC = MSC, MU =MSBso MSB =MSC Figure,Competitive market and efficiency:one good case,Market failure and Role of government,Market failure,Imperfect competition Public goods Externalities Incomplete markets,Irrational preferences Imperfect information Macroeconom

37、ic instability Inequality of income distribution,Imperfect competition,Welfare loss Increase price above MC by supplying less output Types of imperfect competitionMonopolyOligopolyMonopolistic competition,Causes for market power Differentiated products； Transaction costs(Entry barriers) Economy of S

38、cale,中国主要垄断行业的垄断租金及其占GDP的比重,Public goods,Two properties:Non-excludability_impossible to exclude individuals from the consumption of this good Non-rivalry_additional consumer will not cause decrease in consumption quantity and quality of other consumers,or will not cause MC. Typical public goodsNatio

39、nal defense ,lighthouse,dam Difficulties for the efficient provision of public goods:no supply or not enough supply,Externalities,DefinitionThe production and consumption of some goods can cause costs or benefits for others directly，the producers or consumers do not pay for the costs or get compensa

40、tion for the benefits ,so they will not take these externalized costs or benefits into account when making relevant decisions. Negative externalities (water pollution) or positive externalities(primary education) Effects (excessive or too little supply of relevant goods).,Nonexistence of markets,Whe

41、n cost of provision is less than what consumers are willing to pay Unemployment Insurance Unavailability of loans for farmers, college students, small business,etc. infrastructure,urban renewal programs (extensive coordination required ),Imperfect information,Too little supply：high costs for informa

42、tion disclosure Asymmetric informationOne party in a transaction has information that is not available to anotherExample:Low-quality or false goodsInsurance market-adverse selection Information as public goods,Irrational preference,Merit Goods Evaluation of consumers lower than reasonable evaluation

43、(seat belts ,elementary education,fine arts,etc.) Dismerit Goods Evaluation of consumers higher than reasonable evaluation(cigarettes) Paternalism vs. libertarianism,Equality problem,Macroeconomic disequilibrium,Unemployment(recessions and depressions) Inflation Undesirable balance of international

44、payments unacceptable rate of economic growth,Great depression,Unemployment rate :25% Output drop:one third,Fiscal functions,Allocation Distribution Stabilization,Income distribution,Pareto optimum care nothing for the income distribution Unequal distribution of original endowment may lead to unequa

45、l distribution of income even though resources are allocated efficiently Figure,Resource allocation,Fiscal expenditures Public provision of some goods which are not adequately supplied in a market economy Public provision versus public production Subsidyto promote private provision of some goods. Ta

46、xation Influence the private production by adjusting tax rate.,Income redistribution,Taxtransfer policy. Combining progressive taxation of high-income with a subsidy to low-income households. Finance public service such as public housing which particularly benefit the poor by progressive income tax.

47、 Impose taxes on goods purchased chiefly by rich consumers while subsidize necessities to benefit the poor.,Stabilization,The four main goals of stabilization：high employment；price level stability；desirable rate of economic growth；sound balance of international payments 。 Fiscal instruments affectin

48、g aggregate demand: Discretionary fiscal policy: to influence the aggregate demand via budget adjustment. Automatic stabilizer: progressive income tax or unemployment aids.,Part II Public expenditure,Public goods Externalities Political economy Cost-benefit analysis Major catogories of public expend

49、iture,Public goods,Pure public goods Impure public goods,Pure public goods,Pure public goods,Properties of public goods Efficient provision of public goods Lindahl equilibrium Preference revelation mechanism,Properties of public goods-I,Two basic Properties (pp56): Non-excludability: to prevent anyb

50、ody from consuming the good is too expensive or impossible.Non-rivalryNo additional resource cost of another person consuming the good( MC=0:Marginal production cost is zero, Marginal congestion cost is zero).,The inefficiency of private provision of public goods,Due to non-rivalry Efficiency requir

51、es P=MC Price of the public goods should be zero. Due to non-excludability Free rider:someone who lets other people pay while enjoying the benefits himself. Incentives to hide the true preferences for a public good. Solution:public provision Force consumers pay for the public goods using coercive po

52、wer,Efficient provision of public goods,The difference between private and public goods,Private goods Public goodsX=Xi,Market equilibrium for a private good,pp58,Property of Market equilibrium for a private good,Demand side: MRSAXY= MRSBXY = PX/PY ( by the consumer theory) = Pxd (we set PY=1) Supply

53、 side:MRTXY = MCX/MCY ( by definition) MC X=PX ( by the firm theory)MC Y= PY ( by the firm theory) MRTXY= PX/PY =PXs (with PY=1) Equilibrium:PXd =PXs MRSAXY= MRSBXY = MRTXY,Market equilibrium for a public good,pp60,Property of Market equilibrium for a public good,Demand side:MRSAGX= PAG/PX ( by the

54、consumer theory) =PAGd(we set PX=1) MRSBGX = PBG/PX =PBGd PGd =PAGd +BGd = MRSAGX + MRSBGX Supply side:MRTGX= PG/PX =PGs (with PX=1) Equilibrium: PGd =PGs MRSAGX + MRSBGX = MRTGX,Efficient provision of public goods,Condition for efficient provision of private goods MRTSXLK= MRTSYLK MRSAXY= MRSBXY =

55、MRTXY Condition for efficient provision of public goods MRTSXLK= MRTSGLK MRSAGX+ MRSBGX = MRTGX pp60,Lindahl equilibrium,pp112,Lindahl equilibrium,Assumption: Unanimous agreement Two individuals,one public good Tax price measured by share of the cost of the public good(SA,SB) Equilibrium:a set of ta

56、x shares which makes A and B agree with the same quantity of the public good Procedure to reach the equilibrium:auction,Problems for Lindahl equilibrium,Free-rider problem (Preference revelation mechanism pp79)People may not vote sincerely Decision-making costs,Further question:,Privately provided p

57、ublic goodsand Privately produced public goods (pp58,66),Impure public goods,To some extent rival or excludable (in consumption ),Properties of club goods,Possible to charge consumers（excludability） Additional consumer does not affect the pleasure of others when there are limited number of consumers

58、. （non-rivalry） Congestion occurs when number of consumers exceed the specific limit.（rivalry） examples：bridge, swimming pool, park, club,Example:a bridge in the central business district,Quasi-public goods,Goods with positive externalities. Part of the benefits accrue to the consumers, Part of the

59、benefits accrue to other members of the society.,Externalities,Effects Remedies,Definition,Whenever an individual or firm undertakes an action that has an effect on another individual or firm,for which the latter does not pay or is not paid ,there is an externality. Pecuniary externalities? The nature of externalities pp82,Welfare loss,Externalized costs Externalized benefits,Externalized costs: Excessive production or consumption,Welfare loss,SS(MSC),A,DD,dd(MPB),