McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved. CHAPTER 1 INTRODUCTION

1-2 Defining the Field of Study  Public Finance – the field of economics that analyzes government taxation and spending policies  Public Sector Economics-see definition above  Public Economics-see definition above  What is not part of public finance

1-3 Public Finance and Ideology  Organic view of government  Mechanistic view of government

1-4 The Legal Framework  Federal government Federal Constitutional provisions  Article 1, Section 8  Article 1, Section 9  16 th Amendment  5 th Amendment

1-5 The Legal Framework  State governments Federal constitutional provisions  10 th amendment The State constitutions  Local governments Derive power to tax and spend from the States Fiscal independence of local governments

1-6 The Size of Government  How to measure the size of government Number of workers Annual expenditures  Types of government expenditure Purchases of goods and services Transfers of income Interest payments  Budget documents Unified budget Regulatory budget

1-7 State, Local, and Federal Government Expenditures (selected years) 1234 Total Expenditures (billions) 2005 Dollars (billions)* 2005 Dollars per capita Percent of GDP , % ,2015, % ,7497, % 19901,8732,57410, % 20002,8873,23711, % 20053,876 13, % *Conversion to 2005 dollars done using the GDP deflator Source: Calculations based on Economic Report of the President, 2006 (Washington, DC: US Government Printing Office, 2006), pp. 280,284,323,379 Adjusting for Inflation Adjusting for Population Relative to Economy

Source: Organization for Economic Cooperation and Development [2006]. Figures are for United States

Source: Economic Report of the President [2006, p. 377]. Note decline in Defense Note increase in Social Security, Medicare and Income Security

Source: Economic Report of the President [2006, p. 383]. Decline in highways Increase in public welfare

Source: Economic Report of the President [2006, p. 377]. Social insurance and individual income tax have become more important Corporate and other taxes have become less important

Source: Economic Report of the President [2006, p. 383]. Individual tax more important Property tax less important

1-13 Changes in the Real Value of Debt  Inflation tax

1-14 Doing Research in Public Finance  Public Finance journals International Tax and Public Finance Journal of Public Economics National Tax Journal Public Finance Public Finance Quarterly  General-interest journals American Economic Review Journal of Economic Perspectives Journal of Political Economy Quarterly Journal of Economics Review of Economics and Statistics

1-15 Doing Research in Public Finance  Other sources Journal of Economic Literature Brookings Institution’s Studies of Government Finance Congressional Budget Office reports National Bureau of Economic Research working papers Tax Foundation’s Facts and Figures on Government Finance  U.S. Government Printing Office publications Statistical Abstract of the United States Economic Report of the President Budget of the United States U.S. Census of Governments Historical Statistics of the United States from Colonial Times to 1970

1-16 Doing Research in Public Finance  Public Finance data available on internet Resources for Economists on the Internet U.S. Census Bureau University of Michigan’s Office of Tax Policy Research University of Michigan’s Office of Tax Policy Research Urban-Brookings Tax Policy Center