Reference no: EM131142570

Academic requirements:

Answer all the question given belaw:

Public Sector Economics

1. Discuss the way that saving is taxed under an income tax and a consumption tax. Which is more efficient? Why? Which is more equitable? Why? In your explanation, be sure to discuss how some tax systems place a double tax on saving.

2. Explain how a subsidy can eliminate the inefficiency caused by a positive externality. Use a graph to assist your explanation. Why does the optimal subsidy promote the efficient use of resources? Does the existence of a positive externality necessarily imply that a subsidy is needed for the efficient allocation of resources? Distinguish between marginal and inframarginal externalities in giving your answer.

3. Some critics of the current tax structure in the United States argue that there is a double tax on saving and that the tax structure should be overhauled. Others argue that taxes on saving should be higher. Explain and evaluate the argument that there is a double tax on saving. As a result of your explanation, do you think that the current tax structure should be changed? Give an economic justification for your opinion.

4. Explain the demand-revealing system of voting proposed by Clarke, including the way in which his "Clarke taxes" help to make the system work. In what respects would the Clarke system be better than simple majority rule? In what respects would it be worse?

5. What is the prisoners' dilemma game? Explain what outcome you would expect to see in a prisoners' dilemma game if (a) the game is played only once, or (b) if the game is played repeatedly with the same players. Both the prisoners' dilemma game and the Coase theorem consider the way that individuals interact when there are possibilities for mutual benefit. Relate your discussion of the prisoners' dilemma game to the Coase theorem.

6. A market economy can operate only if the rights of individuals are protected. Explain why. What are the three institutions of government that protect individual rights? Briefly explain the function of each institution.

7. What is a natural monopoly? Explain, using a graph to assist, the theory behind regulating a natural monopoly for the public benefit. Are there many examples of natural monopolies in the real world? How did most monopolized industries come to be monopolized?

8. Explain how the Social Security program is financed, making sure to distinguish between funded and pay-as-you-go systems in your discussion. What are the economic consequences on saving and investment from funding Social Security as we do today? Use a graph to assist your explanation.

9. What is the common pool problem? Discuss how the problem can be solved, making sure to distinguish solutions that might apply to small groups from solutions that apply to large groups. Why would potential solutions to the common pool problem for small and large groups be different?

10. Income taxes and property (or wealth) taxes tax two different elements of the same tax base. Explain why this is so, giving a simple example to illustrate your explanation. Within this framework, explain the logic of taxing imputed rental income on owner-occupied housing, and explain how the tax system currently deals with this issue of imputed rental income.

11. Redistribution programs might be pursued to promote greater equality, or might be pursued to help alleviate the problems of poverty. Discuss the merits of these two different goals. Do you think that one goal would be favored over the other from behind a Rawlsian veil of ignorance? Redistribution might take place through cash transfers, or might take place through in-kind redistribution. Discuss these two methods of redistribution as ways of addressing the goals of greater equality and alleviation of the problems of poverty.

12. Assume that a redistribution program is instituted which guarantees a certain minimum income. The program pays people the guaranteed amount if they earn no income, and reduces the amount people are paid by $.50 for every $1.00 of income earned. How would this program affect the incentive to earn income? Will low-income people necessarily have higher incomes with this program than without it? Use a graph to illustrate the points in your answer.

13. Two alternative ways of taxing real estate are site value taxation and taxation based on assessed value. Explain the differences between these two types of taxation. Which type of taxation will have the lower excess burden? Why?

14. Explain the differences between fixed quantity subsidies and excise subsidies, using graphs to help illustrate the differences. Which of these two types of subsidies is likely to have the greatest effect on the allocation of resources? Why? Would the recipient be better off with an excise subsidy or a fixed quantity subsidy of the same amount? Explain, using a diagram to help your explanation.

15. What is a collective consumption good? Explain how the efficient level of production for a collective consumption good is determined, and why the market will not produce the efficient level. Relate the concept of the collective consumption good to Lindahl pricing, and explain the advantages of Lindahl pricing for collective consumption goods. Use graphs to assist in your explanation.

16. Two categories of public goods are non-rival consumption goods and nonexcludable goods. Discuss the similarities and differences between these two types of goods. If a good is non-rival in consumption, does that mean that it is also nonexcludable? If a good is nonexcludable, does that mean it is non-rival in consumption? Why might the market produce non-rival goods inefficiently? Why might the market produce nonexcludable goods inefficiently?

17. The food stamp program provides stamps worth a certain fixed amount to buy food, and allows recipients to spend more on food if they desire. Explain both the distributional and allocative effects of the food stamp program. Use a graph to assist in your explanation.

18. The food stamp program provides stamps worth a certain fixed amount to buy food, and allows recipients to spend more on food if they desire. (a) If the recipient wants to buy more food than could be purchased with food stamps alone, would the recipient be better off receiving cash rather than food stamps? (b) If the recipient wants to buy less food than the amount that could be purchased with the food stamps, would the recipient be better off with cash rather than food stamps? (c) Assume that $2 worth of food stamps can be sold for $1. Would the recipient in part
(b) be better off selling some food stamps? Illustrate your answer to all three parts of the question using graphs.

19. Explain the cyclical majority, as it applies to democratic politics. What condition must be present for a cyclical majority to occur? Is a cyclical majority more likely to occur in large groups of voters (electing a president, for example) or small groups (congressional voting)? What difference does the size of the group make to the likelihood of a cyclical majority?

20. Assume that a per unit tax is placed on the supplier of a good. Explain the factors that determine how much of the tax is borne by the supplier and how much can be shifted to the demander. Also explain what determines how large the excess burden of the tax will be, and what relationship, if any, exists between the shifting of a tax from one side of the market to the other and the size of the excess burden of a tax. Use graphs to help illustrate each component of your answer.