Public Sector Economics - 1st Edition - ISBN: 9780434985845, 9781483140896

Public Sector Economics

1st Edition

Made Simple

Authors: D. I. Trotman-Dickenson
eBook ISBN: 9781483140896
Imprint: Made Simple
Published Date: 1st January 1983
Page Count: 300
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Public Sector Economics: Made Simple introduces the reader, step by step, clearly and methodically, to the concepts and principles of public sector economics. The functions and finance of central government, local authorities, and nationalized industries are examined within the framework of a national economy. Examples are given largely from the British economy but international comparisons are made. A large number of tables and diagrams are also provided so as to relate the theory to the real world.

Comprised of 21 chapters, this book discusses the theory and practice of public finance, with emphasis on public expenditure, taxation, and the national debt. Fiscal policy with its economic, social, and political objectives is also considered and viewed in relation to monetary policy and prices and incomes policy. After an overview of economic systems and models, the book focuses on allocation of resources and provision of public goods; public expenditure in Britain; the theory of taxation and the tax system; taxes on income, profits, consumption, and capital; and taxable capacity, incidence of taxation, and the tax burden. Fiscal policy is analyzed in relation to economic growth, standard of living, and distribution of income and wealth.

This monograph is intended for economists and students taking economics-related courses.

Table of Contents


Section 1: Economie Framework

1 Economie Systems and Models

Political Economy

Types of Economie System

Economie Models

The Sector Model of an Economy

Input-Output Model


Suggested Further Reading


2 National Income

Purposes of National Income Data

Early Estimates of National Income

Social Accounting

Definition and Calculation of National Income

Income Method

Expenditure Method

Output Method

Choice of Method of Calculating National Income for Developed and Developing Countries

International Comparison of National Income

Comparison of the Standard of Living

Determination of National Income and the Multiplier

Fluctuations in National Income

Trade Cycle Theories


Suggested Further Reading


3 Allocation of Resources and Provision of Public Goods

Optimum Allocation

Utilitarian Approach to Economic Welfare

Market Allocation of Resources and Government Intervention

Opportunity Cost

Social Choice


Suggested Further Reading


Section 2: Public Finance Expenditure

4 Public Expenditure

Public Finance

Functions of the State

Theories of Public Expenditure

Observations on the Growth of Public Expenditure

Trends in Public Expenditure, Current and Constant Prices

Empirical Evidence on the International Growth of Public Expenditure

Reasons for the Growth of Public Expenditure

Restraints to the Growth of Public Expenditure

Consequences of the Growth of Public Expenditure


Suggested Further Reading


5 Public Expenditure in Practice: The British Experience

Phases in the Growth of Public Expenditure

Development of Social Services


Health Services

Relief of the Poor

Establishment of the Welfare State


Suggested Further Reading


Section 3: Public Finance, Taxation

6 The Theory of Taxation and the Tax System

The Need for Revenue

Early Taxes

Theories of Taxation

Equality of Sacrifice

Rates of Taxation

Principles of Taxation

A Tax System

Merits and Demerits of Direct and Indirect Taxation

Pattern of Taxation

Revenue Maximisation, 'Laffer Curve' Analysis


Suggested Further Reading


7 Taxes on Income

Basis of Income Tax

The Origin of Income Tax in the UK

Compliance of Income Tax with the Principles of Taxation

Income Tax and Incentives in Theory

Income Tax and Incentives in Practice

Supply of Labour and Taxation

Empirical Evidence on Tax Disincentives and the Supply of Labour

Effect of Progressive Income Tax on the Level of Personal Savings and the Pattern of Investment

Empirical Evidence on Effects of Taxation on Savings and Investment

Inflation and Indexation for Income Tax Purposes

Negative Income Tax (NIT)


Suggested Further Reading


8 Taxes on Profits

Early Taxes on Incomes of Businesses

Computation of Profits

Illusory Profits, Inflation and Taxation

Profits Tax, Differentiated Rate on Distributed and Undistributed Profits

Corporation Tax, The New System of Computation

The Effects of Profits Taxes

Taxation of Excess Profits

A New Tax on Profits from North Sea Oil

Calculation of Petroleum Revenue Tax

The Use of Government Revenue from North Sea Oil

Social Security Contributions as a Form of Taxation

The Surcharge, Departure from the Principle of Insurance


Suggested Further Reading


9 Taxes on Consumption

Types of Taxes

Choice of Goods to be Taxed

Tax Rates

Negative Indirect Taxation—Subsidies

Indirect Taxation in the UK

Customs Duties: Use as Protective Measures

Trend Away from Tariffs, GATT, EEC

Excise Duties

Purchase Tax

Value Added Tax (VAT)



Suggested Further Reading


10 Taxes on Capital

Definition of Capital

Types of Taxes on Capital

Revenue and Policy Aspects of Taxation of Capital

Capital Transfer Tax

Capital Gains Tax

Wealth Tax

Valuation and Problems of Indexation

Effect of Inflation on Value of Assets

Compliance of Capital Taxes with the Principles of Taxation

Trend Away from Taxes on Capital

Taxation of Capital in the UK

Stamp Duties


Suggested Further Reading


11 Reform of the Tax System, Expenditure Tax and the Meade Report

Need for Reform

Idea of an Expenditure Tax

Outline of a Universal Expenditure Tax

Problems of Introducing the New System

Advantages of an Expenditure Tax


Suggested Further Reading


12 Taxable Capacity, Incidence of Taxation and the Tax Burden

Taxable Capacity Defined

Measurement of Taxable Capacity

Tax Burden of a Country

Taxpayers' Burden

Incidence of Taxation

International Comparison of the Tax Burden

The Hidden Cost of Taxation, Compliance and Avoidance Costs

The 'Black Economy' and Taxation


Suggested Further Reading


Section 4: Budgets and Borrowing: Finance of Central and Local Government and the EEC Budget

13 Central Government Finance

The Budget

Types of Budget

Preparation of the Budget: Administrative Framework

Role of Parliament

Audit of Public Expenditure

Control and Management of Public Expenditure

Cash Limits

European Community Budget


Suggested Further Reading


14 Public Sector Borrowing

National Debt Defined

Structure of the National Debt

Acquisition of National Debt Holdings

National Debt as an Asset and as a Liability

Management of the National Debt

Origin of the British National Debt

Attempts to Repay the National Debt. The Sinking Fund

Public Sector Borrowing Requirement (PSBR)

Consequences and the Burden of National Debt

The Internal and External Burden of the National Debt

International Monetary Fund (IMF)

International Bank for Reconstruction and Development


Suggested Further Reading


15 Local Government Finance

Organisation and Functions of Local Government

Features of a Financial System

Provision of Public Goods and Services

Pattern and Growth of Local Authorities' Expenditure

Reasons for Growth

Sources of Finance

Incidence of Rates

Arguments in Favour and Against Rates

Modification of the Rate System

Charges and Fees

Market Mechanism in the Public Sector

Pricing Policies of Local Authorities

Grants to Local Authorities

New Sources of Revenue

Local Authorities' Borrowing

Budget and Policies


Suggested Further Reading


Section 5: Public Sector of Industry and Public Investment

16 Nationalised Industries and Public Sector Enterprises

Composition of the Public Sector of Industry

The Size of the Public Sector of Industry

Reasons for Nationalisation

Performance of the Nationalised Industries

Arguments Against the Expansion of the Public Sector of Industry

Organisation and Control of Nationalised Industries

Parliamentary Controls


Financial and Economic Obligations of the Nationalised Industries

New Investment Policies

Pricing Policies


Public Dividend Capital


Suggested Further Reading


17 Investment Appraisal

Purpose of Investment Appraisal

Procedure in the Decision-Making Process

Pay Back Method of Investment Appraisal

Average Rate of Return Method

Discounted Cash Flow Technique

Outline of Cost-Benefit Analysis

Development of Cost-Benefit Analysis

Problems in Valuation of External Costs and Benefits

Limitations of Cost-Benefit Analysis

Usefulness of Cost-Benefit Analysis


Suggested Further Reading


Section 6: Management of the Economy

18 Fiscal Policy to Stabilise the Economy

Background to Fiscal Policy

Keynesian Prescription

Monetary Policy, Friedman's Monetarist Prescription

Inflation and Stagflation

Prices and Incomes Policy

The British Experience


Suggested Further Reading


19 Fiscal Policy in Relation to Employment

Full Employment

Measurement of Unemployment

Basis for a Policy

Frictional Unemployment

Seasonal Unemployment

Structural Unemployment

Regional Unemployment

Cyclical Unemployment

Voluntary Unemployment

Future Unemployment Problem


Suggested Further Reading


20 Fiscal Policy in Relation to Economic Growth and the Standard of Living

Measure of Economic Growth

International Comparison

Factors Influencing Growth

Limits to Economic Growth

Economic Welfare and the Standard of Living

Elimination of Poverty

Fiscal Policy to Increase the Standard of Living


Suggested Further Reading


21 Fiscal Policy in Relation to Distribution of Income and Wealth

Objective of Equality

Causes of Inequality

Measure of Inequality

Lorenz Curve

Formulation of Policy

Problems of Inadequate Data

Measures to Redistribute Income and Wealth


Suggested Further Reading



1 Calculation of Index Numbers

2 Calculation of a Change in the Purchasing Power of Money

3 Calculation of Public Revenue, Public Expenditure and National Income in Real Terms



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About the Author

D. I. Trotman-Dickenson

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