罗森《财政学》第七版课后题答案.docx

罗森《财政学》第七版课后题答案.docx

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罗森《财政学》第七版课后题答案

Instructor’sManual

toaccompany

PublicFinance

SeventhEdition

SuggestedAnswerstoDiscussionQuestions

andSampleExams

byHarveyS.Rosen

March2004

©McGraw-Hill/Irwin2004

SuggestedAnswerstoDiscussionQuestions

Someofthequestionshavenosingle“correct”answer–reasonablepeoplecangooffindifferentdirections.Insuchcases,theanswersprovidedheresketchonlyafewpossibilities.

Chapter1

1.a.Putin’sstatementisconsistentwithanorganicconceptionofgovernment.Individualsandtheirgoalsarelessimportantthanthestate.

b.Rehnquistmakesaclearstatementofthemechanisticviewofthestate.

2.a.Apersonwithanorganicconceptionofthestatemightreactfavorably,arguingthatevenifanindividualownerisworseoffbecausehemustshowonlyFrenchmovies,thenationisbetteroffbecauseitachievesmoreunity.

b.Alibertarianwouldcertainlyrejectthispolicyandthereasoningbehindit--thereisno“nationalinterest”independentoftheinterestsofindividuals,andpeopleshouldhavetherighttoruntheirlivesinthewaythattheyprefer--includingseeingwhatevermoviestheywant.

c.ASocialDemocratwouldtrytobalancethesetwoaims,anditishardtopredicthowheorshewouldcomeout.

3.Mechanisticviewofgovernmentsaysthatthegovernmentisacontrivancecreatedbyindividualstobetterachievetheirindividualgoals.Withinthemechanistictradition,peoplecoulddisagreeontheobesitytax.Libertarianswouldsaythatpeoplecandecidewhatisbestforthemselves.Theydonotneedproddingfromthegovernment.Incontrast,socialdemocratsmightbelievethatpeoplearetooshortsightedtoknowwhatisgoodforthem,sothatgovernment-providedinducementsareappropriate.

4.a.Ifthesizeofgovernmentismeasuredbydirectexpenditures,themandatedoesnotdirectlyincreaseit.Costsofcompliance,however,maybehighandwouldappearasanincreaseina“regulatorybudget.”

b.It’shardtosaywhetherthisrepresentsanincreaseordecreaseinthesizeofgovernment.OnepossibilityisthatGDPstayedthesame,andgovernmentpurchasesofgoodsandservicesfell.Anotheristhatgovernmentpurchasesofgoodsandservicesgrew,butataslowerratethantheGDP.Onemustalsoconsidercoincidentfederalcreditandregulatoryactivitiesandstateandlocalbudgets.

c.Thefederalbudgetwoulddecreaseifgrants-in-aidwerereduced.However,ifstateandlocalgovernmentsoffsetthisbyincreasingtaxes,thesizeofthegovernmentsectorasawholewouldnotgodownasmuchasonewouldhaveguessed.

5.Theinflationerodestherealvalueofthedebtby0.032x£332billionor£10.6billion.Thisfigureshouldbeincludedasrevenuetothegovernment.

6.Thefederalgovernmentgrewby$450billion.However,becausethepricelevelwentupby16percent,intermsof2001dollarsthisamountedtoadecreaseof$224billion（=$1.86trillion-1.16x$1.41trillion）.AsaproportionofGDP,federalspendingin1993was21.2percentandin2001itwas18.2percent.Hence,bybothmeasures,thesizeofgovernmentfell.Togetamorecompleteanswer,onewouldwantdataonthepopulation（tocomputerealspendingpercapita）.Also,itwouldbeusefultoaddinexpendituresbystateandlocalgovernments,toseeifthetotalsizeofgovernmentfell.Also,althoughitwouldbehardertomeasure,onewouldwanttotrytogainsomesenseofhowtheregulatoryburdenontheeconomygrewduringthistimeperiod.

Chapter2

1.Therealitythatastronomersaretryingtounderstandisnotinfluencedbyany“policies”thatastronomersmightimplement.Moreover,theparameterswithwhichastronomersmustdealareconstantovertime,whiletheparametersineconomicscanchangeacrosstimeandspace.

2.Achangeinthemarginaltaxratechangestheindividual’snetwage.Thisgeneratesbothanincomeeffectandasubstitutioneffect.Aslongasleisureisanormalgood,theseeffectsworkinoppositedirections.Hence,onecannottellaprioriwhetherlaborsupplyincreasesordecreases.Onecouldasktaxpayerstodescribehowtheywouldchangetheirbehaviorundertheproposal,butitishardtoimaginethatthiswouldyieldusefulresults.Inasocialexperiment,acontrolgroupwouldconfrontthestatusquo,andanexperimentalgroupwouldfacethenewtaxregime.Thisisclearlyinfeasible.Econometricinvestigationoflaborsupplyseemsthebestapproach,particularlyifdataassociatedwithpastchangesintaxratescanbebroughttobearontheproblem.

3.Generally,economicoutcomesareaffectedbyanumberofvariables.Economistscannotperformcontrolledrandomizeexperiments,whichmakesitdifficulttoassesshowanysinglevariableaffectsagivenoutcome.Similarly,brainimpairmentmaybeduetoanumberoffactors.Ecstasyusersclearlyarenotarandomsampleofthepopulation.Hence,onedoesnotknowwhetherbrainimpairmentisduetoEcstasyorsomevariablethatiscorrelatedwithEcstasyuse.

4.Thetextpointsoutthepitfallsofsocialexperiments:

theproblemofobtainingarandomsampleandtheproblemsofextendingresultsbeyondthescopeoftheexperiment.Participantsinthestudyhadfoundittotheiradvantagetobeapartoftheexperiment,whichmayhaveresultedinaself-selectedpopulationunrepresentativeofthewidergroupofhealthcareconsumers.Further,physicians’“standardpractices”arelargelydeterminedbythecircumstancesofthepopulationasawhole,nottherelativelysmallexperimentalgroup.

5.Thereappearstobeaweakrelationshipbetweendeficitsandinterestrates.Indeed,itmightappearthatwhenlargedeficitsleadtolowerinterestrates.However,onewouldneedmoredatatoinvestigatethisquestion.OnewouldwanttolookatdeficitsrelativetoGDP.Onewouldliketocontrolforotherfactorsthatcanaffectinterestrates,suchasmonetarypolicyandthelevelofeconomicactivity.

Chapter3

1.a.Inthisparticularinsurancemarket,onewouldnotexpectasymmetricinformationtobemuchofaproblem–theprobabilityofafloodiscommonknowledge.Moralhazardcouldbeanissue–peoplearemorelikelytobuildnearabeachiftheyhavefloodinsurance.Still,onewouldexpectthemarketforfloodinsurancetooperatefairlyefficiently.

b.Thereissubstantialasymmetricinformationinthemarketsformedicalinsuranceandmalpracticeinsurance.Forefficientconsumption,thepricemustbeequaltothemarginalcost,andtheeffectofinsurancemaybetoreducetheperceivedpriceofmedicalcareconsumption.Thatwouldleadtoconsumptionabovetheefficientlevel.Becauseoftherolesofregulation,insurance,andtheshiftingofcostsfromtheuninsuredtotheinsured,thereislittlereasontoexpectthemarkettobeefficient.

c.Inthestockmarketthereisgoodinformation,andthousandsofbuyersandsellers.Weexpect,ingeneral,efficientoutcomes.

d.Fromanationalstandpoint,thereisagooddealofcompetitionandinformation.Theoutcomewilllikelybeefficient.However,somefirmsmightexercisesomemarketpower.

e.Studentloanmarketsmaybeimperfectbecauseofasymmetricinformation--studentknowsbetterthanlenderwhetherhewillworkhardenoughtorepaytheloan.

f.Carinsurancemarketsmaybeimperfectbecauseofasymmetricinformation.Driverswhoknowtheyareparticularlyaccidentpronewillbeparticularlylikelytowantcarinsurance（orpolicieswithgreatercoverage）.

2.Pointarepresentsanequalallocationofwater,butitisnotefficientbecausethereisnotangency.Pointbisanefficientallocation（butnottheonlyone）.

AD:

1）Thedashedlineispositionedatthehalfwaypointonthehorizontalaxis.

2）Pointbisatangency

3.Themarginalrateoftransformationbetweenforeignanddomesticmovesdependsontherationoftheirpricesbeforetaxesandsubsidies.Becauseofthewedgecreatedbythetaxesandsubsidies,thetwopriceratiosaredifferent.Therefore,themarginalrateofsubstitutionandmarginalrateoftransformationarenotequal,andtheallocationofresourcesisinefficient.

4.a.Socialindifferencecurvesarestraightlineswithslopeof–1.Asfarassocietyisconcerned,the“util”toAugustusisequivalenttothe“util”toLivia.

b.Socialindifferencecurvesarestraightlineswithslopeof–2.Thisreflectsthefactthatsocietyvaluesa“util”toAugustustwiceasmuchasa“util”toLivia.

5.Itishardtoseeanyredistributiveorefficiencygaintoaprogramoffreeconcerts.Ifyoubelievethatyoucan“improve”people’stastesbyexposingthemtoclassicalmusic,thentheremaybeameritgoodjustification.

6.a.Itishardtoseeamarketfailurehere.TheCoastGuardcansetarescuefeeequaltothemarginalcostofarescue.

b.Welfareeconomicsprovideslittlebasisforsuchasubsidy.

c.Asymmetricinformationisprobablynotaprobleminamarketlikethis,soitishardtoseewhytheprivateinsurancemarketisnotallowedtofunction.

d.Itishardtoimagineabasisinwelfareeconomicsforthisregulation.

e.Thisisnotanefficientpolicy.Iftheproblemisthattoomuchwaterisbeingconsumed,thentheansweristoincreasethepriceofwater.Onthatbasis,peoplecandecidewhetherornottheywanttoiletsthatrequirelesswater.

f.[needanswer]

7.Thesetofpossibleallocationsisastraightline100unitslong.EveryallocationisParetoefficient,becausetheonlywaytomakeonepersonbetteroffistomakeanotherpersonworseoff.

8.Itwouldseemthatmarketsareagoodsocialorderbythiscriterion.Everyoneactsselfishly（i.e.,maximizeshisownutility）buttheresultisaParetoefficientallocationofresources.Thisassumes,ofcourse,thatalltheconditionsfortheFirs