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Economics: Public Finance and Public Choice Public Finance oThe study of the role of the government in the economyTaxationGovernment SpendingRegulation WelfarePublic Choice oApplying the economic lens to non-market decisionsGovernment CrimeFamilyReligionoActors in these realms respond to incentives just like actors in the market realmPublic Finance: Government Spending and TaxationoFederal oState and Local Spending Differs from federal spending Education and health care account for 55 percent Highways, utilizes, and police and fire protection are includedoGenerating Government RevenueState and Local revenue comes mainly from sales and property taxes State and local government also receive federal fundsThey levy individual and corporate income taxes What do you think the federal government spends money on? oSocial Security: 38%oDefense: 4%oMedicare: 23%oIncome Security: 16% oVeterans Benefits: 4%Mandatory and Discretionary SpendingoMandatory—or direct—spending includes spending for entitlement programs and certain other payments to people, businesses, and state and local governments. oMandatory spending is generally governed by statutory criteria; it is not normally set by annual appropriation acts. Outlays for the nation’s three largest entitlement programs (Social Security, Medicare, and Medicaid) and for many smaller programs (unemployment compensation, retirement programs for federal employees, student loans, and deposit insurance, for example) are mandatory spending. Social Security and some other mandatory spending programs are in effect indefinitely, but some (for example, some agriculture programs) expire at the end of a given period.
oRoughly 60 percent of federal spending in 2012 (other than for the government’s net interest costs) was mandatory. Legislation that