introduction / motivationdarp.lse.ac.uk/pdf/ec426/ec426_17_01.pdf · 2017. 9. 20. · 2 politicians...
TRANSCRIPT
Introduction / Motivation
Johannes Spinnewijn
London School of Economics
Lecture Notes for Ec426
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Topics & Question in Public Economics
Classical division in Public Economics:
Taxation: How does and should government raise revenues?Spending: How does and should government spend revenues?
Same fundamental questions for both topics:
When and how should the government intervene?How do government policies affect economic behavior?
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Why care about government interventions?
Government expenditures average close to 50 percent ofnational income in OECD countries.
stakes are extremely large because of broad scope of policiesgovernment is largest employer in many countries (ex. UKNHS)
Contentious debate on the appropriate role of government insociety
evidence on increasing inequality / austerity governments aftercrisisgovernment expenditures have increased as a percentage ofnational income throughout the 20th centurygovernment expenditures have shifted towards social securityand health insurance in particular
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UK Government in the 20th CenturyGovernment expenditures as a percentage of national income
Source: IFS; Crawford et al., A Survey of Public Spending in the UK, IFS
Briefing Note no. 43, September 2009
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International Comparison of Total Spending,1960-2001
Source: Gruber’s Textbook
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Distribution of UK Government Spending
Rule-of-thumb: 20% on Pensions, 20% on Health, 20% on SI &Welfare, 15% on Education.
Source: IFS 2008-2009. Alternative source:http://www.ukpublicspending.co.uk/
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Social Security Spending as a Share of NationalIncome, 1949 to 2011
Source: 1949—50 to 2007—08 from ONS series ANLY; 2008—09 to 2010—11
from HM Treasury, Budget 2009.
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NHS Spending as a Share of National Income, 1949to 2011
Source: 1949—50 to 2007—08 from Offi ce of Health Economics; 2008—09 to
2010—11 uses plans for NHS England from HM Treasury, Budget 2009
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Change in Distribution of US Gov. spending, 1960vs. 2014
Source: Gruber’s Textbook
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International Comparison of Social ExpendituresShare of GDP, 2007 vs. peak vs. 2014
Source: OECD
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First Part focuses on Social Insurance
SI is the biggest and most rapidly growing part of governmentexpenditures in many countries. Generosity of SI (i.e.replacement of lost income) differs significantly amongcountries.
Some (US) vocabulary:
Social Insurance = transfers based on events such asunemployment, disability, retirement or health.
Welfare = means-tested transfers such as poverty alleviation,housing benefits.
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Main Questions in Social Insurance
1 What type of insurance system maximizes social welfare?
2 Why have social (as opposed to private, or any) insurance?
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Why have social insurance?
General motivation for insurance: pool risks of risk-averseindividuals
Unemployment Ins: risk of involuntary unemployment
Disability Ins (& Worker’s Compensation): risk ofinjuries/disabilities
Health Ins: risk of health shocks
Social security annuity: risk of outliving your wealth
But why is government intervention needed to provide thisinsurance?
we established First and Second Welfare Theorem, so whyshould we care when 50 million Americans have no healthinsurance?
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Why have social insurance?
Typical answer is market failure due to asymmetric information
private information about actions leads to moral hazard;increase in coverage increases the probability that the riskoccurs
private information about risks leads to adverse selection;higher risk types are more likely to buy insurance
Does this provide a rational for government intervention?
in case of adverse selection it does; government has advantageover private insurers that it can mandate insurance
if governments intervene for other reasons, understanding howinterventions affect selection and incentives is essential foroptimal design
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What else can explain government interventions?Other Market Failures
externalities, aggregate risks, redistribution, imperfectcompetition,...
Behavioral failures
people make mistakes, do not internalize the true impact oftheir actions on themselves
Trade-off between costs and benefits of governmentintervention
1 information: how does government aggregate information onpreferences and technology to choose optimal production andallocation?
2 politicians not necessarily a benevolent planner in reality; faceincentive constraints themselves
3 why does govt. know better what’s desirable for you (e.g.wearing a seatbelt, not smoking, saving more)
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Outline
1 Unemployment Insurance (& Moral Hazard) [1-2 Lectures]
2 Health Insurance (& Adverse Selection) [1-2 Lectures]
3 Social Security [1 Lecture]
4 Education [1 Lecture]
5 Behavioral Public Economics [1 Lecture]
6 Optimal Taxation [3 Lectures]
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Approach
Integration of theory with empirical evidence to derivequantitative predictions about policy
theoretical analysis of core issues
empirical analysis of direct and indirect effects
institutional framework (incomplete)
Behavioral public economics: focus on non-standard decisionmakers where relevant
Critical about question; why government?
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Logistics
Slides and reading list posted in advance on Frank’s website
Background textbooks:
Public Finance and Public Policy by GruberHandbook of Public Economics (recent Vol. 5 in particular)
Contact:
Email: [email protected] ce hours: Tuesday 4 - 5 (32LIF 3.24)
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