Thank you.
What is the role of the Congressional Budget Office? Why is independence and impar- tiality important when conducting empirical analyses?4. Why does redistribution cause efficiency losses? Why might society choose to redis- tribute resources from one group to another when doing so reduces the overall size of the economic pie?1. Many states have language in their constitutions that requires the state to provide for an "adequate" level of education spending. What is the economic rationale for such a requirement?2. How has the composition of federal and state and local government spending changed over the past 40 years? What social and economic factors might have con- tributed to this change in how governments spend their funds?5. Consider the four basic questions of public finance listed in the chapter. Which of these questions are positive-questions that can be proved or disproved-and which are normative-questions of opinion? Explain your answer.3. Some goods and services are provided directly by the government, while others are funded publicly but provided privately. What is the difference between these two mechanisms of public financing? Why do you think the same government would use one approach sometimes and the other approach at other times?8. In order to make college more affordable for students from families with fewer resources, a government has proposed allowing the student of any family with less than $50,000 in savings to attend public universities for free. Discuss the direct and possible indi- rect effects of such a policy.10. In the United States, the federal government pays for a considerably larger share of social welfare spending (that is, spending on social insurance programs to help low- income, disabled, or elderly people) than it does for K-12 education spending. Simi- larly, state and local governments provide a larger share of education spending and a smaller share of welfare spending. Is this a coincidence, or can you think of a reason for why this might be so?6. One rationale for imposing taxes on alcohol consumption is that people who drink al- cohol impose negative spillovers on the rest of society-for example through loud and unruly behavior or intoxicated driving. If this rationale is correct, in the absence of governmental taxation, will people tend to consume too much, too little, or the right amount of alcohol?9. The country of Adventureland has two citizens, Bill and Ted. Bill has a private legal busi- ness. He earns $50 per hour. At a tax rate of 0%, Bill works 20 hours. At a 25% tax rate he works only 16 hours, and at a 40% tax rate he works only 8 hours per week. Ted works a manufacturing job. He works 20 hours per week and earns $6 per hour, regardless of the tax rate. The government is considering imposing an income tax of either 25% or 40% on Bill and using the revenues to make transfer payments to Ted. The accompanying table summarizes the three possible policies. Does either tax policy raise social welfare? Are either of the policies obviously less than optimal? Explain your answers. Effects of Redistributive Policies in Adventureland 0% 25% 40% Bill's Pre-Tax Income $1,000 $800 $400 Bill's Taxes 0 $200 $160 Bill's Net Income $1,000 $600 $240 Ted's Pre-Tax Income $120 $120 $120 Ted's Transfer Payment 0 $200 $160 Ted's Net Income $120 $320 $280
