Econ Chapter 16 & 17

proprietary income the income that governments receive from running government-owned enterprises such as hospitals, utilities, toll roads, and lotteries
public finance subdiscipline of economics that studies the various ways in which governments raise and expend money
government purchases exhaustive; the products purchased directly require the use of resources and are part of the domestic outputex)purchase of a missile absorbs the labor of physicists and engineers along with steel etc.
transfer payments nonexhaustive; products do not directly absorb resources or create outputex) Social Security benefits, welfare payments, veterans’ benefits, unemployment compensation
government revenues are from taxes, proprietary income, and funds that are borrowed by selling bonds to the public
deficit spending government spending that is financed by borrowing
federal expenditure (spending) pensions and income security, national defense, health, interest on the public debt
personal income tax progressive tax; the kingpin of the Federal tax system and merits special comment; levied the incomes of households and unincorporated businesses after certain exemptions
marginal tax rate the rate in which the tax is paid on each additional unit of taxable income
average tax rate the total tax paid / total taxable income
payroll taxes taxes based on wages and salaries; used to finance Social Security and Medicare for retired workers
corporate income tax levied on a corporation’s profit;total revenue – total expenses
sales and excise taxes taxes on commodities or on purchases
the primary source of State tax revenue sales and excise taxes
local revenue from property taxes
local expenditure education, welfare, health, hospitals, public safety
A majority of state and local workers are employed in education
A major federal employment is dominated by postal service and national defense
benefits-received principle households should purchase the goods and services of government in the same way they buy other commodities
ability-to-pay principle the tax burden should be apportioned according to taxpayers’ income and wealth
progressive tax its average rate increases as income increases
regressive tax its average rate declines as income increases
proportional tax its average rate remains the same regardless of the size of income
tax incidence the degree to which a tax falls on a particular person or group
efficiency loss of the tax society’s sacrifice of net benefit because the tax reduces production and consumption of the product below their levels of economic efficiency, where marginal benefits and marginal costs are equal
redistributive goals impose progressive taxes as a way to redistribute income
reducing negative externalities the efficiency loss of a tax assumes no negative externalities arising from either the production or consumption
The U.S. Federal tax system is progressive
The U.S. State and local tax structures are largely regressive
The overall U.S. tax system is progressive
asymmetric information unequal knowledge possessed by the parties to a market transaction
moral hazard problem the possibility that individuals or institutions will change their behavior as a result of a contract or agreement after the contract is signed
adverse-selection problem sellers have information that buyers don’t have at the time a contract is signed
public choice theory the economic analysis of government decision-making, politics, and elections
logrolling the trading of votes to secure desired outcome
paradox of voting a situation in which society may not be able to rank its preferences consistently through paired-choice majority voting
median-voter model the theory that under majority rule the middle voter will be in the dominant position to determine the outcome of an election
government failure economically inefficient outcomes caused by shortcomings in the public sector
principal-agent problems conflicts that arise when tasks are delegated by one group of people (principals) to another group (agents)
collective action problem larger groups are more difficult to organize and motivate than smaller groups
special-interest effect any outcome of government promotion of the goals or interests of a small group at the expense of a much larger group; small groups win over big groups
earmarks narrow, designated authorizations of expenditure
rent-seeking the appeal to government for special benefits at taxpayers’ or someone else’s expense
political corruption the unlawful misdirection of governmental resources or actions that occurs when government officials abuse their power for personal gain

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