Public Finance Concepts and Interventions

Vocabulary flashcards covering core public finance terminology, types of market failures, rationale for government intervention, policy effects, and economic analysis frameworks based on the lecture material.

Public Finance

The study of how governments collect revenue and allocate resources in the economy.

Market Failure

A situation in which private markets fail to allocate resources efficiently.

Economic Efficiency

A justification for government intervention aimed at improving resource allocation and increasing the overall size of the economic pie.

Subsidy

A type of government intervention used to lower the price for private sales or purchases of underproduced goods.

Externality

A cost or benefit imposed on a third party who is not directly involved in a transaction.

Positive Externality

A third-party benefit resulting from an economic transaction, such as herd immunity created by vaccinations.

Negative Externality

A third-party cost imposed by an economic activity, which can be corrected by policies such as an imposed pollution tax.

Income Redistribution

Government action aimed primarily at reducing inequality by transferring income from one group to another.

Efficiency-Equity Trade-off

The concept that government measures taken to increase income equality may result in efficiency losses, such as reduced worker incentive or reduced employment.

Direct Effect

An intended outcome of a government policy, such as employees receiving a pay increase immediately following a minimum wage hike.

Indirect Effect

An unintended outcome of a government policy, such as job seekers no longer searching for work after receiving income support.

Public Provision

A mechanism where the government directly provides and funds a service, such as a federally funded health service paying doctors directly or a government-run postal service.

Normative Analysis

Public finance analysis concerned with questions of how governments should intervene in the economy.

Positive Analysis

Public finance analysis concerned with understanding why governments intervene in the way they do.

Fiscal Deficit

A state where government expenditure exceeds tax revenue during a fiscal year, such as spending $415\text{ billion}$ while collecting $400\text{ billion}$.

Free-Rider Problem

A market issue that occurs when individuals benefit from a public good or service without paying for it.

Information Asymmetry

A market failure that occurs when one party in a transaction has more information than the other, such as a used car seller knowing about hidden defects.

Stabilization Fiscal Policy

A macroeconomic tool used by governments to stabilize the economy, such as increasing spending on infrastructure during a recession.