Questions and Answers of Public Finance A contemporary Application

What are the fundamental differences between fully funded and pay-as-you-go tax-financed retirement systems? How can the Social Security system continue to pay pension benefits even if its trust fund
Under what conditions will the growth of tax revenues to pay Social Security benefits equal the rate of growth of labor earnings in the economy? Why have payroll tax rates been increased in recent
Use indifference curve analysis to show how the Social Security pension system can reduce annual consumption for some workers who have strong preference for current versus future consumption. What
How can lowering replacement rates or increasing the retirement age affect the Social Security tax rate?
Many economists assert that Social Security pensions redistribute income from single workers to married workers with dependent spouses and from high-income workers to low-income workers. Why is this
Explain the asset-substitution effect of Social Security. How does the asset-substitution effect change the choices made by a worker who is saving for retirement? In the long run, as many workers’
Use indifference curve analysis to show how the availability of Social Security pensions and the application of the earnings test are likely to decrease hours worked and labor force participation of
Define the dependency ratio of Social Security. Why is an increasing dependency ratio causing concern about the financial solvency of Social Security? Under a fully funded Social Security system,
Use indifference curve analysis to show how a payas-you-go Social Security retirement system can decrease a worker’s savings per year from a positive amount to zero. Under what circumstances will
In what sense are Social Security pension benefits based on “need”?
How can the bequest effect and the induced retirement effect offset the asset-substitution effect?
Social security is a form of social insurance. As social insurance, not welfare (or social) assistance), retirement benefits are reserved for past contributors. Moreover, the more payroll tax that a
Social insurance programs (in particular Social Security and unemployment insurance) are considered an economic necessity in developed countries. Conversely, in less-developed countries, social
What factors influence the political equilibrium?
Given tax shares, explain why only the median voter consumes his most-preferred quantity of a public good under majority rule. Show how other voters are prevented from obtaining maximum satisfaction
Suppose the military bureaucracy consistently misinforms Congress on the total costs of producing military hardware. Assume that it underestimates the actual costs and that the political
Explain in your own words the inherent problem of government waste identified by William Niskanen. Then create a counter example, where competition among different government agencies eliminates this
When does majority rule lead to the possibility of public choices that result in the outcome of an election being contingent on the order in which alternatives are presented to the electorate? Under
Most Americans do not travel on Amtrak, yet Congress repeatedly votes to give Amtrak federal subsidies. Through what political process would the majority of members of Congress nevertheless vote in
Under what conditions will the median peak correspond to an extreme outcome, such as no output of a good?

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