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The Public Sector

CHAPTER 

1

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

Randall Holcombe

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

Randall Holcombe1-2

What i the Public Sector!What i the Public Sector!

Reource allocated throu"h "o#ernmentReource allocated throu"h "o#ernment

U$S$ "o#ernment allocate about %&' o(U$S$ "o#ernment allocate about %&' o(

nation) reourcenation) reource Sumber da*a dialo+ai+an melaluiSumber da*a dialo+ai+an melalui

,emerintah,emerintah

Pemerintah -meri+a men"alo+ai+anPemerintah -meri+a men"alo+ai+ane+itar %&' dari umber da*a ne"arae+itar %&' dari umber da*a ne"ara

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

Randall Holcombe1-3

.oal (or Stud*in" Public Sector.oal (or Stud*in" Public Sector

EconomicEconomic E/,lain ho0 "o#ernment allocateE/,lain ho0 "o#ernment allocate

reourcereource

Etablih (rame0or+ to anal*1eEtablih (rame0or+ to anal*1e

"o#ernment acti#itie"o#ernment acti#itie

Tu2uan mem,ela2ari e+onomi e+tor ,ubli+:Tu2uan mem,ela2ari e+onomi e+tor ,ubli+:

3men2ela+an ba"aimana ,emerintah men"alo+ai+an3men2ela+an ba"aimana ,emerintah men"alo+ai+anumber da*aumber da*a

33etablihetablih +eran"+a +er2a untu+ men"analia +e"iatan+eran"+a +er2a untu+ men"analia +e"iatan

,emerintah,emerintah

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

Randall Holcombe1-4

Politic and EconomicPolitic and Economic

Economic acti#itie in(luence ,oliticalEconomic acti#itie in(luence ,olitical

deciiondeciion

Political deciion in(luence the econom*Political deciion in(luence the econom* The im,ortance o( the ,olitical deciion3The im,ortance o( the ,olitical deciion3

ma+in" ,rocema+in" ,roce 4e"iatan e+onomi mem,en"aruhi +e,utuan ,oliti+4e"iatan e+onomi mem,en"aruhi +e,utuan ,oliti+

4e,utuan ,oliti+ mem,en"aruhi e+onomi4e,utuan ,oliti+ mem,en"aruhi e+onomi

Pentin"n*a ,roe membuat +e,utuan ,oliti+Pentin"n*a ,roe membuat +e,utuan ,oliti+

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

Randall Holcombe1-5

Public Choice or Bene#olent 5e,ot!Public Choice or Bene#olent 5e,ot!

.o#ernment deciion are made collecti#el* in.o#ernment deciion are made collecti#el* in

democraciedemocracie

Political ,roce6Political ,roce6 notnot bene#olent de,ot6 determinebene#olent de,ot6 determine

reource allocationreource allocation

No aurance "o#ernment 0ill allocate reource e((icientl*No aurance "o#ernment 0ill allocate reource e((icientl*

4e,utuan ,merintah dibuat ecara +ole+ti( dalam4e,utuan ,merintah dibuat ecara +ole+ti( dalam

demo+raidemo+rai

Proe ,oliti+6Proe ,oliti+677777777$677777777$6 determinedetermine alo+aialo+ai

umber da*aumber da*a

Tida+ ada 2aminan ,emerintah a+an men"alo+ai+anTida+ ada 2aminan ,emerintah a+an men"alo+ai+an

umber da*a ecara e(iienumber da*a ecara e(iien

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

Randall Holcombe1-6

Mar+et (ailure doe not necearil* im,l* "o#ernmentMar+et (ailure doe not necearil* im,l* "o#ernment

inter#entioninter#ention Cannot aume ,er(ect "o#ernment im,lementation o(Cannot aume ,er(ect "o#ernment im,lementation o(

8o,timal9 ,olic*8o,timal9 ,olic*

Ma"nitude o( "o#ernment (ailure mut be com,ared toMa"nitude o( "o#ernment (ailure mut be com,ared to

i1e o( mar+et (ailurei1e o( mar+et (ailure 4e"a"alan ,aar4e"a"alan ,aar

 

Public Choice or Bene#olent 5e,ot!Public Choice or Bene#olent 5e,ot!

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

Randall Holcombe1-7

The -cti#itie o( .o#ernment

.o#ernment i com,ried o( thouand o(

"o#ernment unit

Three le#el: ederal

State

Local

Each le#el allocate di((erent le#el and

t*,e o( reource

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

Randall Holcombe1-8

The -cti#itie o( .o#ernment

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

Randall Holcombe1-9

Federal Expenditures

-ccount (or hal( o( ,ublic ector ,endin"

Three ma2or cate"orie o( "o#ernment

,endin"National de(ene

Human reource

Interet

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

Randall Holcombe1-10

ederal E/,enditure

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

Randall Holcombe1-11

ederal E/,enditure

5e(ene ,endin" ha declined ince

%;<=

O((et b* human reource ,endin"

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

Randall Holcombe1-12

ederal E/,enditure

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

Randall Holcombe1-13

ederal 5e(icit and Interet

E/,enditure 5e(icit (inanced b* "o#ernment bond

5ebt interet ubtantial ,art o( (ederal

bud"et

ederal bud"et&de(icit trend a

,ercenta"e o( .5P

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

Randall Holcombe1-14

ederal 5e(icit and Interet

E/,enditure

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

Randall Holcombe1-15

ederal .o#ernment Re#enue

Peronal income ta/

Social inurance re#enue

Cor,oration income ta/e E/cie ta/e6 etate and "i(t ta/e6

cutom dutie

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

Randall Holcombe1-16

.ro0th o( .o#ernment in >=th 

Centur*

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

Randall Holcombe1-17

International Com,arion

5i((icult to com,are "o#ernment i1e

acro countrie

U$S$ "o#ernment "ro0th relati#el* mall

com,ared to other countrie

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

Randall Holcombe1 18

International Com,arion