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CHAPTER

1
The Public Sector

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


Randall Holcombe

What is the Public Sector?


Resources

allocated through government


U.S. government allocates about 1/3 of
nations resources
Sumber daya dialokasikan melalui
pemerintah
Pemerintah Amerika mengalokasikan
sekitar 1/3 dari sumber daya negara
PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy
Randall Holcombe

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Goals for Studying Public Sector


Economics
Explain how government allocates
resources
Establish framework to analyze
government activities

Tujuan mempelajari ekonomi sektor publik:


-menjelaskan bagaimana pemerintah mengalokasikan
sumber daya
-establish kerangka kerja untuk menganalisa kegiatan
pemerintah

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


Randall Holcombe

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Politics and Economics


Economic

activities influence political

decisions
Political decisions influence the economy
The importance of the political decisionmaking process

Kegiatan ekonomi mempengaruhi keputusan politik


Keputusan politik mempengaruhi ekonomi
Pentingnya proses membuat keputusan politik
PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy
Randall Holcombe

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Public Choice or Benevolent Despot?

Government decisions are made collectively in


democracies
Political process, not benevolent despot, determines
resource allocation
No assurance government will allocate resource efficiently
Keputusan pmerintah dibuat secara kolektif dalam
demokrasi
Proses politik,., determines alokasi
sumber daya
Tidak ada jaminan pemerintah akan mengalokasikan
sumber daya secara efisien
PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy
Randall Holcombe

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Public Choice or Benevolent Despot?

Market failure does not necessarily imply government


intervention
Cannot assume perfect government implementation of
optimal policy
Magnitude of government failure must be compared to
size of market failure
Kegagalan pasar

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


Randall Holcombe

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The Activities of Government


Government

is comprised of thousands of
government units
Three levels:
Federal
State
Local

Each

level allocates different levels and


types of resources
PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy
Randall Holcombe

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The Activities of Government

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


Randall Holcombe

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Federal Expenditures
Account

for half of public sector spending


Three major categories of government
spending
National

defense
Human resources
Interest

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


Randall Holcombe

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Federal Expenditures

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


Randall Holcombe

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Federal Expenditures
Defense

spending has declined since

1950s
Offset by human resource spending

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


Randall Holcombe

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Federal Expenditures

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


Randall Holcombe

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Federal Deficit and Interest


Expenditures
Deficit

financed by government bonds


Debt interest substantial part of federal
budget
Federal budget/deficit trends as
percentage of GDP

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


Randall Holcombe

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Federal Deficit and Interest


Expenditures

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


Randall Holcombe

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Federal Government Revenues


Personal

income tax
Social insurance revenues
Corporation income taxes
Excise taxes, estate and gift taxes,
customs duties

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


Randall Holcombe

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Growth of Government in 20th


Century

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


Randall Holcombe

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International Comparisons
Difficult

to compare government size


across countries
U.S. government growth relatively small
compared to other countries

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


Randall Holcombe

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International Comparisons

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


Randall Holcombe

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