Form 8655 Associations 2024

Public finances is the study of the role of the government in the economy. It is the branch of economics that assesses government revenue and government expenditure of public authorities. This is done to achieve desirable effects and avoid undesirable ones. The purview of public finance is considered to have three main components: governmental effects on efficient allocation of resources, distribution of income, and macroeconomic stabilization. An overview of the proper role of government provides a starting point for the analysis of public finance. In theory, under certain circumstances, private markets will allocate goods and services among individuals efficiently. However, in many cases, conditions for private market efficiency are violated. For example, if many people can enjoy the same good at the same time, then private markets may supply too little of that good. National defense is an example of non-rival consumption or a public good. Market failure occurs when private markets do not allocate goods or services efficiently. The existence of market failure provides an efficiency-based rationale for collective or governmental provision of goods and services. Externalities, public goods, informational advantages, strong economies of scale, and network effects can cause market failures. Public provision via government or voluntary associations can address these market failures. However, government provision is subject to other inefficiencies known as government failure. Under broad assumptions, government decisions about the efficient scope and level of activities can be efficiently separated from decisions about the design of taxation systems. In this view, public sector programs should be designed to maximize social benefits minus costs. Revenues needed to pay for those expenditures should be raised through a taxation system that creates the fewest efficiency losses caused by distortion of economic activity as possible. In practice, government budgeting or public budgeting is more complicated and often results in inefficient practices. The government can...