Question

1.state and local government face three fundamental fiscal choices. please list these choices, and using an example in a specified government program, explain how these choices interact with each other, if at all.

2."if school expenditures are selected by a majority vote, then most of the voters in the district will be perfectly happy with the selected amount of spending." evaluate this statement.

3.Richard Musgrave has provided us with a 3-part defining state of the "role" of government. please describe each, and provide an example for each role.

4.state's constitutions provide guidance regarding fiscal policy and provide the operating parameters under which a budget is developed. describe the stages of the budget process in New York State, including the relevant time period for specific activities. include a discussion of the players (executive/legislature) and their role in the process.

5. what are "public goods"? define the characteristics using examples. the existence of externalities creates an efficiency problem in the provision of these goods and services. unlike the private sector, State and Local Government are able to intervene. using the example of an externality that will impact its provision, and detail how a government could intervene.

Answer 1

The three fiscal choices available with the state and the local governments are:

• Taxation
• Government spending
• Government borrowing

Taxation- Example: Corporate tax.-- The government at the Federal, state and local levels impose taxes on the income of corporate entities. An example of a corporate income tax would be the Alternative Minimun Tax program, wherein some corporations, individuals, trusts etc have to pay a certain amount on top of the basic income tax they pay to the government. This is because these entities enjoy a certain level of exemptions with respect to tax payments.

Government spending: Government spending includes expenditure by the government towards public welfare. Examples of governmnent expenditure are development of railways, roadways, public infrastructure such as schools, libraries, recreation facilities etc. It also includes expenditure on old age pensions, educational grants etc.

Government borrowing: It is also known as public debt, government debt or national debt. The goverment borrows money from the public issuing securities, bonds and bills. When the government sells bonds it receives money in exchange for it as debt. This is done at a specified interest rate. Government borrowings keep the money supply in check as it is done to reduce the money supply in the economy and encourage savings. Example of a US government bond is the Series EE bond.

Now we shall see how taxes, government expenditure and government borrowings are related to each other.

One of the roles of the government is to provide good infrastructure, financial security to its citizens, education, etc. Any activity that results in the overall growth of the nation and public welfare is done by means of government spending on the above mentioned areas and more. The money that is spent for these purposes is from the government revenue. And one of the most important forms of government revenue is through taxation. Less taxes means lesser money available for public expenditure. More taxes means less money in the hands of the public for consumption.

Government borrowing is done in order finance government expenditures. The types of revenue for the government can be classified as tax revenue and non tax revenue. Tax revenue is income from taxation. Non tax revenue includes profits, borrowings etc i.e any other source of income other than taxation. More government borrowing usually means a relaxtion on taxes will follow.

(2). If the school expenditures are decided by a majority vote, then most of the voters in the district will be perfectly happy with the amount of spending. This is because it is the government that decides the areas and the amount of expenditures. This means that not all the voter's needs or expectations are satisfied. In a government budget plan there are always some gainers and some losers. Let us take for instance the case of educational grants. The amount spent by the government on educational grants or school infrastructure, waivers on educational loans and so on may not perfectly match the expectations of the voters(public). But if the school expenditures are decided by a majority vote, then the chances are that the majority of voters get what they want and are perfectly happy.

(3). Richard Musgrave's 3 part definition of the role of the government:

According to his theory the role of the government includes:-

• Allocation
• Distibution
• Macroeconomic stability

The role of allocation by the government would mean keeping a check on the areas of the economy that are inefficient. For example, ensuring high employment rates, keeping price levels in check, maintaining affordable interest rates etc.

The role of distribution is to ensure that the national income is fairly distributed among its citizens (i.e) reducing the inequality in the distribution of income. For example, good labor market practices, progressive taxes, accumulation of human capital, easy access to educational institutions.

The role of macroeconomic stability is to ensure that the government does not fall into the dangerous economic traps such as overproduction or excessive or very less taxation or borrowing.

(4). The state of New York follows the steps mentioned below in the process of budgeting:-

• Setting forth the budget calander
• The budget officer distributes forms of the budget to schools and department heads of the local government. The forms include a space where the department heads can suggest measures for expenditures and revenue and a space for explaining the previous year's ependitures and revenues.
• Department heads submit their analysis and estimates to the budget officer.
• The budget officer uses the information available to formulate a budget proposal. He must ensure that the budget proposal meets all the requirements of the local government or school district.
• The budget officer finally submits the proposal to the governing board for its consideration and approval.
• The governor submits the executive budget to the legislature for approval. The legislature through its fiscal committees(Senate Finance and Assembly Ways and Means) analyses the proposed executive budget and holds public hearing to get feedback.
• The legistature calls the Division of budget to hold economic discussions regarding the proposed budget.
• Before the passing of the bills the legislature must summarise the changes made to the proposal and issue it.
• After the above steps, the Division of Budget approves the "certificate of allocation" and directs the State Comptroller to release funds for expenditure.

(5). Public goods, also called social goods are goods that are required by one and all. And it is something that should not be less available to one individual when another individual consumes the same good.
Characteristics of public goods are :-

• They are non-excludable.
• They are non-rivalrous.

Non excludable means that it is something that cannot be done away with. For example, roadways, street lights, traffic lights, national security etc.

Non rivalrous means that they are available to all equally. This means that the usage of a public good by one person does not reduce or negate the other individual's access to the commodity or service.

Unlike the private sector, which runs on a profit motive, the government both state and local have a responsibility towards their people. The role of a government is to ensure public welfare and growth. Example of an externality that will affect the availability of public goods such as clean air are increase in pollution levels as a result of activities of private industries. The government in this case can impose regulations on pollution and limit the amount of agent used by industries that pollute the environment. The govenment can also do this by imposing environmental tax which results in rising cost to the firms and thereby leads to a decrease in production of goods using that particular pollutant.