CHAPTER

1
The Public Sector

PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy

Randall Holcombe

What is the Public Sector?

Resources

allocated through government

U.S. government allocates about 1/3 of
nations resources
Sumber daya dialokasikan melalui
pemerintah
Pemerintah Amerika mengalokasikan
sekitar 1/3 dari sumber daya negara
PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy
Randall Holcombe

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Goals for Studying Public Sector

Economics
Explain how government allocates
resources
Establish framework to analyze
government activities

Tujuan mempelajari ekonomi sektor publik:

-menjelaskan bagaimana pemerintah mengalokasikan
sumber daya
-establish kerangka kerja untuk menganalisa kegiatan
pemerintah

PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy

Randall Holcombe

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Politics and Economics

Economic

activities influence political

decisions
Political decisions influence the economy
The importance of the political decisionmaking process

Kegiatan ekonomi mempengaruhi keputusan politik

Keputusan politik mempengaruhi ekonomi
Pentingnya proses membuat keputusan politik
PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy
Randall Holcombe

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Public Choice or Benevolent Despot?

Government decisions are made collectively in

democracies
Political process, not benevolent despot, determines
resource allocation
No assurance government will allocate resource efficiently
Keputusan pmerintah dibuat secara kolektif dalam
demokrasi
Proses politik,., determines alokasi
sumber daya
Tidak ada jaminan pemerintah akan mengalokasikan
sumber daya secara efisien
PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy
Randall Holcombe

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Public Choice or Benevolent Despot?

Market failure does not necessarily imply government

intervention
Cannot assume perfect government implementation of
optimal policy
Magnitude of government failure must be compared to
size of market failure
Kegagalan pasar

PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy

Randall Holcombe

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The Activities of Government

Government

is comprised of thousands of
government units
Three levels:
Federal
State
Local

Each

level allocates different levels and

types of resources
PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy
Randall Holcombe

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The Activities of Government

PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy

Randall Holcombe

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Federal Expenditures
Account

for half of public sector spending

Three major categories of government
spending
National

defense
Human resources
Interest

PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy

Randall Holcombe

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Federal Expenditures

PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy

Randall Holcombe

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Federal Expenditures
Defense

spending has declined since

1950s
Offset by human resource spending

PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy

Randall Holcombe

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Federal Expenditures

PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy

Randall Holcombe

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Federal Deficit and Interest

Expenditures
Deficit

financed by government bonds

Debt interest substantial part of federal
budget
Federal budget/deficit trends as
percentage of GDP

PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy

Randall Holcombe

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Federal Deficit and Interest

Expenditures

PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy

Randall Holcombe

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Federal Government Revenues

Personal

income tax
Social insurance revenues
Corporation income taxes
Excise taxes, estate and gift taxes,
customs duties

PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy

Randall Holcombe

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Growth of Government in 20th

Century

PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy

Randall Holcombe

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International Comparisons
Difficult

to compare government size

across countries
U.S. government growth relatively small
compared to other countries

PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy

Randall Holcombe

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International Comparisons

PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy

Randall Holcombe

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