lec 23 - 24 government expenditure and taxation.ppt

8/20/2019 Lec 23 - 24 GOVERNMENT EXPENDITURE AND TAXATION.ppt

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GOVERNMENT EXPENDITUREGOVERNMENT EXPENDITURE

AND TAXATIONAND TAXATION


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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!


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#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


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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.


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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.


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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


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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


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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.


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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


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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


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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&ample is enair income supportest e&ample is enair income support

*rogramme*rogramme

ther e&amples can be 5ree education inther e&amples can be 5ree education in

*akistan, +cholarships*akistan, +cholarships


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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.


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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

lec 23 - 24 government expenditure and taxation.ppt

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