econ chapter 6

2 types of govt finance

exhaustive: these can be used up and need to be bought again / maintained by real people like physicists that make bombs. the workers receive money to provide the gov with bombs.

non exhaustive: these are one time finances that do not need people involved, like transfer payments, when the people receiving don’t contribute anything to society.

federal primary expenditures

1. pensions

2. medical care

3. defense

4. interest payments on national debt

federal primary revenue sources

1. personal income tax

2. payroll tax

3. corporate income tax

4. excise taxes

state primary expenditures

1. education

2. welfare

state primary revenue sources

1. sales/excise taxes

2. personal income taxes

3. corporate income taxes

local primary expenditures

1. education

2. welfare, health, hospitals

3. public safety

local primary revenue sources

1. property taxes

2. sales/excise taxes

how do they finance the deficit?

state and local: proprietary income and intergovernmental grants from the federal or state government

federal: sell bonds

each tax rate and its type

personal income tax: progressive

★★★payroll tax: proportional medicare, regressive social security

★★★corporate income tax: proportional

sales tax: regressive

excise tax: regressive sins, progressive hotels

property tax: regressive

each tax rate and who pays incidence

personal income tax: individuals

payroll tax: workers and employees

corporate income tax: business

sales tax: consumers

excise tax: consumers (based on elasticity)

property tax: individuals (residential) or tenants for apartments

VAT: what it is, incidence, args pro/con

what it is: retail sales tax that taxes the difference between a G/S sold and the value of the materials used to make it

incidence: ends up being borne by consumers as a chain of producers keep passing it on

args pro/con: proponents say it discourages consumption and encourages saving, opponents say it discourages saving bc the point of saving is to eventually spend

theories of regulation

• public interest theory of regulation: if competition is inappropriate or impractical, society should allow or even encourage a monopoly but regulate its prices (Natty monopolies OK)

• legal cartel theory of regulation: the government regulates by blocking entry and dividing area, much like a cartel

problems with theories of regulation

• costs and inefficiency: monopolies are promised a fair return so there is no incentive to reduce costs, so they pass costs onto consumers

• perpetuating monopoly: regulation blocks firms from becoming competitive even if it would have happened naturally, so the monopoly is no longer Natty

deregulation

deregulation has provided consumer and society net benefits and more efficiency

5 govt roles in the economy

1. correcting market failures (pos/neg externalities)

2. reduce private sector risks

3. protect competition

4. promote stability

5. intervene

state capture

government is run where the people in control are only there because of their loyalty to the leader and nothing else

fiscal vs monetary policy

fiscal: altering tax rates during a recession

monetary: altering interest rates during a recession

types of tax structures of federal, state, local

local is more regressive and federal more progressive i think

merger guideline of government

the government is likely to challenge a merger if the post merger index is above 1800, or if the merger added more than 100 to the index

what kind of gov finance adds to GDP

exhaustive

distribution of government employment

19.3M employed by state/local and 2.7M employed by federal

for local/state:

• 41% elementary/secondary education

• 16% higher education

• 8% hospitals/health

for federal:

• 28% national defense

• 21% postal service

• 15% hospitals + health

effectiveness of anti trust policies

• antitrust policy does not harm natural/legal monopolies

• more effective against abusive monopoly

• that effectiveness has diminished by slow legal processes

• however, it has been effective against price-fixing and tying contracts

arguments for and against social regulation

pro: lots of people die at work, benefits outweigh costs, everyone would be more safe

con: costs exceed benefits, laws poorly written, too costly, jumping to conclusions when implementing, costly/deadly side effects, regulatory agencies are too woke

how is inefficiency rewarded in a bureaucracy

if the govt fails in a project, they just keep increasing budget and staff + politicians who stay silent survive

student loans article notes

- student loans became a thing after the federal government passed the higher education act of 1965 

- back then, taxpayers guaranteed the loans that students took 

- a big problem is the cultural idea that everyone needs to get a diploma and college is the right solution for all Americans to get high-paying jobs 

- there is a much greater demand to attend colleges now 

- there are way more colleges now 

- price of tuition increased because demand increased 

- students have crazy debt right now 

- people are taking out loans triple their salary and only realizing after that they are extremely broke and unable to save up for anything, like a house or a car 

- students cannot file for bankruptcy anymore 

- trade school is a viable alternative that also offers high paying jobs for a fraction of the price 

- kids need to be taught better about economic decisions 

- schools should lend part of the loan so they actually have an incentive to make sure the kid does good and they get their money back

rent seeking behavior

surplus payment where you try to get the government to help you get paid more for a service than it should actually cost

unfunded liability

govts favor spending on things with immediate payouts and future costs