PE Powerpoint Part BW 10

PE Powerpoint Part BW 10 - Public Economics Principles and...

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Public Economics Principles and Practice Part Ten Multi-Government Systems Peter Abelson Applied Economics and University of Sydney
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Multi-Government Systems Multilevel Government Globalisation and Government
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Chapter 33 Multilevel Government Allocation of Functions in a Multilevel System Optimal Size of Local Governments Taxation with Multilevel Governments Household Choices and Local Government Intergovernmental Transfers Multilevel Government in Australia
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Tiers of Government Multilevel government exists in centralised states as well as in federations.
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Allocation of Functions in a Multilevel System Macroeconomic management: Aligning total expenditure with economic capacity is a central responsibility. Sub-national governments: Should not have independent monetary policy Have limited macroeconomic influence because of leakages May distort efficient allocation of resources But judicious use of local fiscal policy may make marginal differences
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Distributional policies Mainly central government responsibility. Only central government can achieve horizontal equity across country. Sub-national redistribution may be ineffective and counter-productive. However most local communities want (legitimately) to have some redistribution programs.
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Allocation functions: public goods Decentralisation theorem: Decentralisation maximises economic welfare by equilibrating supply of services to demand. Subsidiarity principle: Subject to cost considerations, public services should be supplied by the level of government closest to the users of the service.
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Decentralisation theorem
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Problems with shared responsibilities Major problems can arise when different levels of government share responsibilities. r.g in health and education. This is hard to avoid in federations but also in centralised countries.
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Optimal Size of Local Governments Considerations similar to those for supply of public goods. Diversity of preferences points to small areas. Cost efficiency points to larger areas. One problem: optimal size may vary by type of public good provided. There is a shortage of empirical studies. Most studies of costs of services in areas of different sizes focus on technical possibilities rather than behavioural factors. There are few studies of effects of area size on demand and preference satisfaction. More research is needed.
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Governments Criteria for taxes: Distributional (equity) objectives Allocative efficiency (minimise deadweight losses) Fiscal adequacy. Accountability. Two problems Central taxes best meet first two criteria, but this creates problems for other two criteria. There are limited tax bases (income, consumption
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This note was uploaded on 12/02/2009 for the course ECOS a taught by Professor A during the Three '09 term at University of Sydney.

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PE Powerpoint Part BW 10 - Public Economics Principles and...

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