-
8/20/2019 Lec 23 - 24 GOVERNMENT EXPENDITURE AND TAXATION.ppt
1/14
1
GOVERNMENT EXPENDITUREGOVERNMENT EXPENDITURE
AND TAXATIONAND TAXATION
-
8/20/2019 Lec 23 - 24 GOVERNMENT EXPENDITURE AND TAXATION.ppt
2/14
2
GOVERNMENT CONTROL OFGOVERNMENT CONTROL OF
ECONOMYECONOMY
We often hear in talk shows, suggestingWe often hear in talk shows, suggesting
Devote more resources in improvingDevote more resources in improving
public health.public health. More resources should be devoted inMore resources should be devoted in
education of youth.education of youth.
Unemployment in deep recession shouldUnemployment in deep recession shouldbe reduced.be reduced.
ut who will do this!ut who will do this!
-
8/20/2019 Lec 23 - 24 GOVERNMENT EXPENDITURE AND TAXATION.ppt
3/14
"
#hree ma$or tools that government uses to#hree ma$or tools that government uses to
influence private economic activity are%influence private economic activity are% #a&es#a&es
'&penditures'&penditures
(egulations(egulations
TOOLS OF GOVERNMENT POLICYTOOLS OF GOVERNMENT POLICY
-
8/20/2019 Lec 23 - 24 GOVERNMENT EXPENDITURE AND TAXATION.ppt
4/14
)
TAXESTAXES
#a& reduce *rivate income, thereby reducing#a& reduce *rivate income, thereby reducingprivate e&penditures like automobiles andprivate e&penditures like automobiles andrestaurants food.restaurants food.
*rovide resources for public e&penditures like*rovide resources for public e&penditures likeDefense udget, +chools and colleges, roads.Defense udget, +chools and colleges, roads. Discourage certain activities by ta&ing themDiscourage certain activities by ta&ing them
heavily like #obacco, igarettes- andheavily like #obacco, igarettes- and
encourage other activities by ta&ing themencourage other activities by ta&ing themlightly or even subsidiing them like healthlightly or even subsidiing them like healthcare programs, *ro$ects by /0s.care programs, *ro$ects by /0s.
-
8/20/2019 Lec 23 - 24 GOVERNMENT EXPENDITURE AND TAXATION.ppt
5/14
EXPENDITURESEXPENDITURES
3ncreasing e&penditures on certain goods3ncreasing e&penditures on certain goods
and services like roads, education orand services like roads, education or
+ecurity of *ublic.+ecurity of *ublic.
#ransfer *ayments#ransfer *ayments
3ncrease spending that provides resources3ncrease spending that provides resources
to individuals.to individuals.
-
8/20/2019 Lec 23 - 24 GOVERNMENT EXPENDITURE AND TAXATION.ppt
6/14
4
REGULATIONSREGULATIONS
(ules and (egulations that direct people(ules and (egulations that direct people
to perform or refrain from certainto perform or refrain from certain
economics activities.economics activities.
(ules that limit the amount firms can(ules that limit the amount firms can
pollute, 5reedom of +peech or *rotest uppollute, 5reedom of +peech or *rotest up
to certain limit and areato certain limit and area
-
8/20/2019 Lec 23 - 24 GOVERNMENT EXPENDITURE AND TAXATION.ppt
7/14
6
FUNCTIONS OF GOVERNMENTFUNCTIONS OF GOVERNMENT
5our ma$or functions of a government5our ma$or functions of a government
are%are% 3mproving economic efficiency3mproving economic efficiency
(educing economic ine7uality(educing economic ine7uality
+tabiliing the economy through+tabiliing the economy through
macroeconomic policiesmacroeconomic policies
onducting international economic *olicyonducting international economic *olicy
-
8/20/2019 Lec 23 - 24 GOVERNMENT EXPENDITURE AND TAXATION.ppt
8/14
8
IMPROVING ECONOMICIMPROVING ECONOMIC
EFFICIENCYEFFICIENCY
9 entral economic purpose of government is to 9 entral economic purpose of government is to
assist in the socially desirable allocation ofassist in the socially desirable allocation of
resources.resources.
0overnment concentrates on What and :ow of0overnment concentrates on What and :ow ofeconomic life.economic life.
+ome countries emphasie a hands;off, laisse;+ome countries emphasie a hands;off, laisse;
fare approach, leaving most decisions to market.fare approach, leaving most decisions to market.
ther countries lean toward heavy governmentther countries lean toward heavy government
regulation.regulation.
-
8/20/2019 Lec 23 - 24 GOVERNMENT EXPENDITURE AND TAXATION.ppt
9/14
<
INVISIBLE HAND APPROACHINVISIBLE HAND APPROACH
3f all idealied conditions are met like%3f all idealied conditions are met like% onsumers and firms must be fully informedonsumers and firms must be fully informed
about the prices and characteristics of theabout the prices and characteristics of the
goods they buy and sell.goods they buy and sell. #here are no e&ternalities like air pollution.#here are no e&ternalities like air pollution.
#he invisible hand could provide perfectly#he invisible hand could provide perfectly
efficient production and distribution ofefficient production and distribution ofnational output, and there would be nonational output, and there would be no
need for government intervention toneed for government intervention to
promote efficiencypromote efficiency
-
8/20/2019 Lec 23 - 24 GOVERNMENT EXPENDITURE AND TAXATION.ppt
10/14
1=
ut there are certain limits of invisible handut there are certain limits of invisible handapproach.approach.
/o government can take hands off of the/o government can take hands off of the
economyeconomy ourts and police forces would be needed toourts and police forces would be needed to
ensure fulfillment of contracts, nonfraudulentensure fulfillment of contracts, nonfraudulentand nonviolent behavior, freedom from theftand nonviolent behavior, freedom from theft
and e&ternal aggressionand e&ternal aggression 0overnment regulates all the activities of0overnment regulates all the activities of
market economymarket economy
INVISIBLE HAND APPROACHINVISIBLE HAND APPROACH
-
8/20/2019 Lec 23 - 24 GOVERNMENT EXPENDITURE AND TAXATION.ppt
11/14
11
REDUCING ECONOMICREDUCING ECONOMIC
INEQUALITYINEQUALITY
3t deals with income redistribution, so that3t deals with income redistribution, so that
rich should not become richer and poorrich should not become richer and poor
become poorer.become poorer.
est e&le is enair income supportest e&le is enair income support
*rogramme*rogramme
ther e&les can be 5ree education inther e&les can be 5ree education in
*akistan, +cholarships*akistan, +cholarships
-
8/20/2019 Lec 23 - 24 GOVERNMENT EXPENDITURE AND TAXATION.ppt
12/14
12
STABILIZING THE ECONOMYSTABILIZING THE ECONOMY
0overnment has the responsibility of0overnment has the responsibility of
preventing calamitous business depressions bypreventing calamitous business depressions by
the proper use of monetary and fiscal policy, asthe proper use of monetary and fiscal policy, as
well as regulation of the financial system.well as regulation of the financial system. 0overnment tries to smooth out the ups and0overnment tries to smooth out the ups and
downs of the business cycle, in order to avoiddowns of the business cycle, in order to avoid
either large;scale unemployment at the bottomeither large;scale unemployment at the bottom
of the cycle or high inflation at the top of theof the cycle or high inflation at the top of the
cycle.cycle.
-
8/20/2019 Lec 23 - 24 GOVERNMENT EXPENDITURE AND TAXATION.ppt
13/14
1"
-
8/20/2019 Lec 23 - 24 GOVERNMENT EXPENDITURE AND TAXATION.ppt
14/14
1)
CONDUCTING INTERNATIONALCONDUCTING INTERNATIONAL
ECONOMIC POLICYECONOMIC POLICY 0overnment plays a critical role representing0overnment plays a critical role representing
interests of the nation on the international stageinterests of the nation on the international stageand negotiating beneficial agreements withand negotiating beneficial agreements with
other countries on a wide range of issues.other countries on a wide range of issues.
3nternational issues of economics policy are%3nternational issues of economics policy are% (educing #rade arriers(educing #rade arriers
onducting 9ssistance *rogramsonducting 9ssistance *rograms
oordinating macrorconomic *oliciesoordinating macrorconomic *olicies
*rotecting the 0lobal 'nvironment*rotecting the 0lobal 'nvironment