2 GovernmentGovernments are organizations formed to exercise authority over the actions of persons who live together in a society and to provide and finance essential services.
3 Political Institutions Political Institutions are rules and generally accepted procedures that evolve for determining what government does and how government outlays are financed.
4 Examples of Political Institutions Majority ruleRepresentative government
5 The Allocation between Private and Government Resources FoodHousingCarsClothingGovernmentNational DefensePublic SchoolsPolice
6 Figure 1.1 A Production-Possibility Frontier Government Goods andServices per YearAG1X2X1MPrivate Goods and Services per Year
7 Distribution of Government Goods and Services Nonmarket rationing:Prices and willingness to pay those prices are not applicable to goods such as national defense.
8 The Mixed Economy Markets and Politics Pure Market EconomyVirtually all goods and services are supplied by for-profit private firms.Supply and demand determine price.
9 The Mixed Economy Markets and Politics Government supplies goods and servicesRegulates private economic activityGov. exp = ¼ to ½ GDPGov. taxes at least ¼ national incomePolitical institutionsCompulsory financing
11 Government Expenditures in the United States Government purchases oflaborlandcapitalGovernment Transfer PaymentsWelfareSocial Security
12 Growth in Government Expenditures Growth in Government ExpendituresTable 1.1 (abbreviated)YearGDPFederal GovernmentStateand Local GovernmentTotalGovernmentPercentageof GDP193091.32.57.510.010.951945223.084.78.593.241.791960527.485.834.1119.922.7319751635.2345.4152.1497.530.4219999256.11755.8863.72619.528.30
13 International Comparisons CountryGovernment Current Expenditures as a Percentage of GDP 2001Denmark53.5France50.5Germany46.2Canada40.7United Kingdom39.5Japan38.2United States29.7
14 Figure 1.3 Total Government Expenditure as a Percentage of GDP 1929-1999 45403530Percentage of GDP25201510519291931193919451955197019801982198419861988199019921994199619981999Year
15 Structure of Federal Government Expenditures Purchases of Goods and ServicesTransfer PaymentsGrants in Aid to State and Local GovernmentsNet Interest Paid
16 Federal Expenditure by Category, 1999 Table 1.2CategoryPercentage of Total Federal ExpendituresTransfer Payments42.97Purchases27.04Interest14.97Grants to State and Local12.84Other2.18
17 Figure 1.4 The Distribution of Federal Expenditure, 1966-1999 70Government Purchases6050Transfer Payments40Percentage of Total Federal Expenditure30Grants to State andLocal Governments2010Net Interest596163656769717375777981838587899193959799Year
18 Federal Government Expenditure by Function All other5%Veteran’s Benefits3%Social Security23%Transportation3%Education4%Health9%Net Interest11%National Defense16%Medicare12%Income Security14%
19 The Structure of State and Local Government Expenditure in the United States EducationCivilian SafetyTransportationExecutive, Legislative, and JudicialIncome SecurityHealth and HospitalsRecreational and Cultural Activities
20 State and Local Government Expenditure Recreational andCultural Activities2%Other7%Health andHospitals3%Income Security5%Education42.71%ExecutiveLegislative andJudicial11%Transportation13%Civilian Safety16%
21 Financing Government Expenditures in the US Taxes:Income (Corporate and Personal)PayrollExciseCustoms
23 State and Local Government Revenues Other8%Sales Taxes27%Property Taxes21%Corporate Profit Taxes3%Payroll Taxes1%Federal Grants20%Nontaxes3%Income Taxes17%
24 Implications of a Graying America Social SecurityMedicareMedicaid
25 How Much Government is Enough? The question of how much government is enough is an important one in any society. It is the tradeoff between public and private goods. When government gets bigger, it comes at the expense of less private consumption.