财政学_第七版_课后习题答案(英文)全.doc

Part 1 Getting StartedInstructors Manual to accompanyPublic Finance, Seventh Edition, by Harvey S. RosenSuggested Answers to End-of-Chapter Discussion QuestionsSome of the questions have no single “correct” answer reasonable people can go off in different directions. In such cases, the answers provided here sketch only a few possibilities.Chapter 1 - Introduction1.a.Putins statement is consistent with an organic conception of government. Individuals and their goals are less important than the state.b. Rehnquist makes a clear statement of the mechanistic view of the state.2.a.A person with an organic conception of the state might react favorably, arguing that even if an individual owner is worse off because he must show only French movies, the nation is better off because it achieves more unity.b. A libertarian would certainly reject this policy and the reasoning behind it - there is no “national interest” independent of the interests of individuals, and people should have the right to run their lives in the way that they prefer - including seeing whatever movies they want.c. A social democrat would try to balance these two aims, and it is hard to predict how he or she would come out.3.The mechanistic view of government says that the government is a contrivance created by individuals to better achieve their individual goals. Within the mechanistic tradition, people could disagree on the obesity tax. Libertarians would say that people can decide what is best for themselves - whether to consume high calorie food - and do not need prodding from the government. In contrast, social democrats might argue that people are too short sighted to know what is good for them, so that government-provided inducements are appropriate.4.a.If the size of government is measured by direct expenditures, the mandate does not directly increase it. Costs of compliance, however, may be high and would appear as an increase in a “regulatory budget.”b. Its hard to say whether this represents an increase or decrease in the size of government. One possibility is that GDP stayed the same, and government purchases of goods and services fell. Another is that government purchases of goods and services grew, but at a slower rate than the GDP. One must also consider coincident federal credit and regulatory activities and state and local budgets.c. The federal budget would decrease if grants-in-aid were reduced. However, if state and local governments offset this by increasing taxes, the size of the government sector as a whole would not go down as much as one would have guessed.5.The inflation erodes the real value of the debt by 0.021 x 311 billion or 6.5 billion. The fact that inflation reduces the real debt obligation means that this figure should be included as revenue to the government.6.The federal government grew by $450 billion. However, because the price level went up by 16 percent, in terms of 2001 dollars this amounted to a real increase of $224 billion (=$1.86 trillion - 1.16*$1.41 trillion=$1.86 trillion-$1.64 trillion). Note that the increase in prices of 16 percent in the Rosen text (p. 18) differs from official sources. According to the 2004 Economic Report of the President (Table B-60), the CPI-U was 177.1 in 2001 and was 144.5 in 1993, an increase of 22.5 percent, not 16 percent. If one uses these numbers, government spending increased in constant 2001 dollars from $1.72 trillion in 1993 to $1.86 trillion, or $140 billion. As a proportion of GDP, federal spending in 1993 was 21.2 percent and in 2001 it was 18.2 percent. Hence, by one measure, the size of government fell and by the other measure, it grew. To get a more complete answer, one would want data on the population (to compute real spending per capita). Also, it would be useful to add in expenditures by state and local governments, to see if the total size of government fell. Also, although it would be harder to measure, one would want to try to gain some sense of how the regulatory burden on the economy grew during this time period.Chapter 2 Tools of Positive Analysis1.The reality that astronomers are trying to understand is not influenced by any “policies” that astronomers might implement. That is, planets and stars do act any differently when they are being analyzed, whereas people can change their behavior. Moreover, the parameters with which astronomers must deal are constant over time (at least in the “short-run” of hundreds of years), while the parameters in economics can quickly change over time and across geography.2.A change in the marginal tax rate changes the individuals net wage. This generates both an income effect and a substitution effect. As long as leisure is a normal good, these effects work in opposite directions. Hence, one cannot tell a priori whether labor supply increases or decreases. One could ask taxpayers to describe how they would change their behavior under the proposal, but it is hard to imagine that this would yield useful results. In a social experiment, a control group would confront the status quo, and an experimental group would face the new tax regime. This is clearly infeasible. Econometric investigation of labor supply seems the best approach, particularly if data associated with past changes in tax rates can be brought to bear on the problem.3.Generally, economic outcomes are affected by a number of variables some of which are observed and others of which are unobserved. Economists often cannot perform controlled, randomized experiments, which makes it difficult to assess how any single variable affects a given outcome. Moreover, even in the cases when experiments are run (e.g., the Negative Income Tax experiment or the RAND Health Insurance Experiment), a number of unintended behaviors can arise because people know they are in the experiment for a short amount of time and because of lack of generalizability. In the medical example here, brain impairment may be due to a number of factors that are either observed are unobserved. Ecstasy users clearly are not a random sample of the population, but are likely to differ in terms of their attitudes towards risk, their discount rates, and potentially many other ways. Hence, one cannot definitively conclude whether brain impairment is due to Ecstasy or some variable that is correlated with Ecstasy use. There are numerous non-experimental methods that may be helpful in inferring the causal effect of Ecstasy. For example, if there were a plausible “instrumental variable” (perhaps the punitiveness of the drug laws in a state) that was correlated with the supply of Ecstasy but not otherwise correlated with the outcomes of interest, one may be able to estimate the causal effect of Ecstasy on long-run developmental problems.4.The text points out the pitfalls of social experiments: the problem of obtaining a random sample and the problems of extending results beyond the scope of the experiment. Participants in the study had found it to their advantage to be a part of the experiment, which may have resulted in a self-selected population unrepresentative of the wider group of health care consumers. In addition, the RAND Health Insurance Experiment was of limited duration, after which the participants would move to some other health plan. This design could induce certain behavior in the short-run that would not necessarily be present if the health insurance coverage were permanent rather than transitory. Further, physicians “standard practices” are largely determined by the circumstances of the population as a whole, not the relatively small experimental group.5.First, it is important to note that the numbers on page32 of Rosens text actually show the surplus, not the deficit. That is, the negative surplus of $221.2 in 1990 is actually a deficit, while the positive surplus of $236.4 is a surplus. There is a very weak, negative relationship between surpluses and interest rates (the correlation coefficient is -.043), or put differently, a weak, positive relationship between deficits and interest rates. However it is expressed, it is weak - by “eyeballing” the data, it might appear that larger deficits lead to lower interest rates (for example, by comparing the data from 1980 with the data from 2000). One clearly would need more data to investigate this question. One would want to look at deficits relative to some benchmark, such as GDP. One would want to express both interest rates and deficits in real terms, rather than nominal terms. One would like to control for other factors that can affect interest rates, such as monetary policy and the level of economic activity. Finally, one would want to determine which way the causality runs do larger deficits cause higher interest rates, or do higher interest rates cause larger deficits (since, by construction, one of the largest items in the federal budget is interest on the debt).Chapter 4 Public Goods1.a.Wilderness area is an impure public good at some point, consumption becomes nonrival; it is, however, nonexcludable.b. Water from a municipal water supply is both rival in consumption and excludable. My consumption of water precludes you from consuming the same water, thus it is rival. The municipality can control who consumes water by shutting off the flow to customers, thus it is excludable. This is a useful question for showing that not all publicly owned facilities are public goods.c. Medical school education is a private good.d. Television signals are nonrival in consumption.e. An Internet site is nonrival in consumption (although it is excludable).2.We assume that Cheetahs utility does not enter the social welfare function; hence, her allocation of labor supply across activities does not matter.a. The public good is patrol; the private good is fruit.b. Recall that efficiency requires MRSTARZAN + MRSJANE =MRT. MRSTARZAN=MRSJANE =2. But MRT=3. Therefore, MRSTARZAN + MRSJANE MRT. To achieve an efficient allocation, Cheetah should patrol more.3.A pure public good is nonrival in consumption, thus it is necessary to determine whether or not this is the case with the highway. That is, if the additional cost of another person “consuming” the highway is zero, then it is a public good. So, as long as the highway is not congested, then it can be considered to be a public good. However, adding another motorist to an already congested roadway can cause traffic jams that cost motorists more time to travel the highway, which would represent nonzero costs to having an additional person use the highway. Therefore, the congestion of the roadway determines whether or not we could designate it as a public good. Note that we are assuming throughout that the highway is nonexcludable.To determine whether or not the privatization of the highway is a sensible idea, it is necessary to consider the advantages and disadvantages of such an action. First, if the market structure is such that privatizing the highway would result in a monopolist in control of the highway, then this would be inefficient. Also, it would be difficult for the government to write a complete contract for maintaining the highway, which would also cause inefficiencies that would result from the privatization of the road. However, if the government owns the highway, it might not have the appropriate incentives to maintain it properly. In such a case, even ownership by a private monopolist might be a sensible solution.4.The benefits of maintaining the incomes of the poor accrue largely to the recipients of welfare, not to society as a whole. Thus, it is implausible to think of welfare (or the administration of the welfare system) as a public good. Unless there is a “warm-glow” from income redistribution, there is little basis for thinking that the provision of TANF, Medicaid, public housing, or food stamps offers much in terms of benefit to society as a whole. In terms of administration of welfare, it is hard to say whether or not it should be publicly or privately administered. Private administration might be less costly. On the other hand, private administrators might have an incentive to deprive deserving individuals of benefits in order to cut costs. It could be difficult to write a contract to prevent this kind of behavior, because one cannot specify in advance every conceivable set of circumstances under which welfare should be granted. This kind of subjectivity was present in the 1960s, when caseworkers had a great deal of discretion in terms of which households to offer assistance to. This subjectivity led to accusations of discrimination and, from the 1970s onward, there has been far less subjectivity in terms of defining eligibility. Since that time, eligibility is fairly mechanically related to income, assets, family structure, and a number of other observable factors. Given the current system, it seems less difficult today to monitor a private firm than it would have been in the 1960s.5.A lower cost is a necessary (but not sufficient) condition to conclude that prisons should be privatized. A policy maker should be concerned both with costs and quality of prisons. Although, in principle, one could write a contract that is concerned about the quality of prisons (e.g., whether the prisoners are treated decently, whether security is adequate, and so on), Hart, Shleifer and Vishny (1997) note that it is sometimes impossible to write a complete contract because one cannot specify in advance every possible contingency. The key is whether the administration of prisons is a fairly “routine” activity where complete contracts can be written, or whether there are too many contingencies.6.As noted on page65 of the textbook, the experimental results of Palfrey and Prisbrey (1997) suggest that there is some free riding, but some people do contribute. Those authors found that, on average, people contribute a portion of their resources to the provision of a public good, and there is some free riding. That was the case in Manchester, Vermont. Also, Palfrey and Prisbrey found that when the experimental game was repeated, people were more likely to free ride. This also happened in Manchester - in the second year, participation was less.7.There is no compelling reason for museums to be run by the government from the theory of public goods; thus, it is appropriate to think about privatization. Admissions to museums are clearly excludable. And viewing the artwork is also rival, because there is congestion when too many people are consuming the good. Thus, museums may be thought of as a private good rather than public good. In the United States, many great museums are run privately (not for profit), and they seem to do quite well. In terms of private versus public production, the text points out that this decision should be based on relative wage and material costs in the public and private sector, administrative costs, diversity of tastes, and distributional issues. There is no compelling reason to think the private sector would have higher costs than the public sector. In regards to diversity of tastes, a profit-maximizing private sector museum would likely be more responsive to consumer tastes than the public sector e.g., adopting new technologies that make the museum more enjoyable for the typical customer. In regards to distributional issues, it is likely that the private sector would be less responsive than the public sector. The notion of commodity egalitarianism, however, is a stretch for museums.8.If households are allowed to supplement public education with private lessons, then the budget constraint in Figure 4.5 of the textbook is modified by drawing a line starting at point x (consuming only public education) that runs to the southeast and is parallel to AB. The figure below is then similar to the analysis of in-kind benefits like food stamps.epBAAOther GoodsEducationFIGURE 4.8a Supplement public education with private lessonsIf parents pay for the public schooling (rather than perceiving it as being free), and the schooling was paid for with a lump sum tax, then the budget constraint shifts in by an amount that depends on the households share of the tax burden. If the households tax burden exactly equals the cost of public school, the budget constraint is no longer the line segment AB but rather the segment CDB, where the segment DB runs along the original budget constraint, except that the minimum amount of schooling consumed is eP.DCepBAAOther GoodsEducationFIGURE 4.8b Parents pay for “free” schooling9.In this case, the apartments temperature is a public good because for the “society” of Rodolfo and Mimi, the temperature is nonrival and nonexcludable. Both get to “consume” a warmer house, and neither can exclude the other from this. The marginal benefit for society is the sum of Rodolfos and Mimis marginal benefit e.g., $20 at 66 degrees, $17 at 67 degrees, $13 at 68 degrees, $8 at 69 degrees, and $4 at 70 degrees. The marginal benefit for society equals the marginal cost at 67 degrees; for temperatures higher than that, the marginal cost is greater than the marginal benefit for society.10.Thelmas marginal benefit is MBTHELMA=12-Z, and Louises is MBLOUISE=8-2Z. The marginal benefit for society as a whole is the sum of the two marginal benefits, or MB=20-3Z (for Z4), and is equal to Thelmas marginal benefit schedule afterwards (for Z4). The marginal cost is constant at MC=16. Setting MB=MC along the first segment gives 20-3Z=16, or Z=4/3, which is the efficient level of snowplowing. Note that if either Thelma or Louise had to pay for the entire cost herself, no sn