New Paradigms in Public Economics: The Changing perspective

Introduction:
Basically, to Maximize the welfare of the citizens. Require to clarify the
distinction between Normative and Positive roles.
Normative: what the state should do to maximize welfare.
Positive: what the state actually does.
 The normative role on the basis of fundamental economic principles attempts to
outline what the Government, should do to reduce market imperfections. This
role though is affected by the political constitution of a country.
 There is a close relationship between a market economy and the democratic
process.
 In a market economy, individuals vote with their money.
 In the democratic process, they cast their votes in accordance with their
political goals.
Current economic policies are a slave to past government thinking.
Green Keynesianism
 Beyond Standard Policy Paradigms
 Revival of Keynes
 Current preoccupation with environmental issues
 Inherent conflict (EV vehicles)
Development powered by IT
• Information is power and an informed citizenry is the eternal strength of a
democracy’ Hence AI & Big Data-driven policies.
•  Economists at universities across the country have collaborated in developing
a new theory of public economic policy that puts knowledge at the center of
our understanding of welfare ( Aadhar Pan card E-rupee)
• Covid-18 pandemic-contact tracing, hotspots, management of hospitals etc.
Participatory State Policies
• People have the leadership to make economic revitalization a priority, the
culture to mesh that objective with their academic mission, the legal flexibility
to mix and match assets and brainpower with the private sector, and the
resources to make it all work.
Need-based, market-driven State Intervention
• The statist model of Welfare characterized by the predominant role of the
state in initiating, financing, fostering and directing welfare schemes is now
OUT.
• The State is shifting its role to that of a facilitator.

Globalization dominated Development

• the doctrine of Globalization is being abandoned and the charges of
‘economic colonization’ has started dominating public economic thinking
 in Third World nations. Regulated liberalization of national economy will
expedite the pace & volume of Government actions in the public space.
States to Reinstate Agriculture
• A new approach is needed that recognizes the multiple functions of
agriculture for overall welfare: triggering GDP growth in early stages,
reducing poverty, narrowing income disparities, providing food security,
and delivering environmental services.
• Governments and donors have neglected these functions of agriculture
over the last 25 years, with negative impacts on Welfare

The Current Indian Perspectives- A collage of Models

 Inclusive Growth
 Post Pandemic policies
 Mundell Fleming model
 IT-Powered development
 Sustainable development

Challenges Up-front on the Taxation side:

1. Leaky Bucket Phenomenon:
Arthur Okun introduced the Leaky Bucket Phenomenon. Okun believed that
wealth transfers by taxation from the relatively rich to the relatively poor are
an appropriate policy for the government. But he recognized the loss of
efficiency inherent in the redistribution process. In Equality and Efficiency: The
Big Tradeoff Okun introduced the metaphor of the leaky bucket, which has
become famous among economists. He wrote: "The money must be carried
from the rich to the poor in a leaky bucket. Some of it will simply disappear in
transit, so the poor will not receive all the money that is taken from the rich."
2. The Laffer Curve:
Arthur B. Laffer maintained that economic
expansion could be achieved without
government budget deficits.
The Laffer curve shows the tax rate at which
government tax revenue is maximized, after
which it declines. It illustrates the
relationship between average tax rates and
total tax revenue and shows that above a
certain average rate of tax, total tax
revenue will fall.
The Laffer curve implies that there is a
maximum amount of tax that a government can raise, therefore there is a
ceiling to the level of public goods which can be provided.