Public Finance - Week One Lecture

Vocabulary practice flashcards covering basic public finance concepts, size of government metrics, categories of public spending, and long-term historical fiscal trends.

Public Finance

The field of economics that studies the role of the government in the economy, focusing on spending and taxation.

Resource Allocation Efficiency

A core microeconomic evaluation question of government policy that asks whether an intervention makes the economic pie bigger.

Income Distribution Equity

A core microeconomic evaluation question of government policy that asks who receives which slice of the economic pie.

Standard Measure of the Size of Government

The ratio of public spending or tax revenue relative to GDP ($\frac{\text{Public Spending}}{\text{GDP}}$ or $\frac{\text{Taxes}}{\text{GDP}}$), which evaluates government control relative to the size of the national economy.

Transfers

A category of public spending handed directly to people (e.g., State pension, Universal Credit, child benefit, disability benefits) where no public-sector worker produces anything and money moves from taxpayers to recipients.

Government Purchases

A category of public spending used to buy goods, equipment, and services from private firms (e.g., medicines and equipment for the NHS, road building, defence contracts, outsourced services).

Debt Interest

A category of public spending that pays for past borrowing, requiring around £100bn a year in the UK paid to holders of government bonds.

Minimum Job of a State

The core functions almost universally agreed to be essential for a government: national defence, maintenance of law and order, and creation of laws and regulation.

UK Public Sector Employment Ratio

The statistic showing that 17 out of every 100 working people in the UK work for the public sector (approximately 6 million workers).

UK Public Spending Ratio

The statistic showing that government spending accounts for £45 out of every £100 produced in the UK economy (approximately 45% of GDP).

Figure 10.14: The rise of the fiscal State in rich countries 1870-2015

A chart by Thomas Piketty showing total fiscal revenue as a percentage of national income rising from under 10% in the 19th century to around 30% in the U.S., 40% in Britain, and 45%-55% in Germany, France, and Sweden by 2015.

Figure 10.15: The rise of the social State in Europe, 1870-2015

A chart showing how Western European fiscal revenue shifted from being almost entirely regalian expenditure (army, police, justice, administration) before 1914 to predominantly social spending (pensions, health, education, social transfers) by 2015.

UK Historical Tax Revenue Trend (1500–2000)

A historical chart illustrating UK total tax revenue as a % of GDP, characterized by temporary peaks during major wars (e.g., Napoleonic Wars, WWI, WWII) and permanent expansion following universal suffrage in 1928.

Direct Effect of Government Intervention

The immediate intended outcome or initial effect expected from a government policy implementation.

Indirect Effect of Government Intervention

The long-term or unintended changes in individual and firm behavior in response to a government policy intervention.