Public Finance

Many of Italy’s great art treasures are owned and managed by the government. Italy’s cultural institutions, however, are in trouble because of inadequate government funding. In response, the government in 2002 set up a new state agency whose purpose was to value Italy’s cultural treasures and decide what could be sold or leased to private firms. Is it appropriate for a nation to privatize its museums?

Public Good - Privatization of weather forecasting

Senator Rick Santorum (R-PA) has suggested de-funding the National Weather Service, arguing that households receive weather information from media outlets and businesses can receive subscription (paid) weather forecasts from private weather forecasting firms. Consider the externality/public good aspects of weather forecasts and argue for or against such a “privatization” of weather forecasting.

Voting Model - Flat Tax Proposal

A recent opinion poll shows the majority of respondents favor a flat tax of 20 percent on all income, subject to a $35,000 exemption. (The first $35,000 of income would be untaxed.) An independent politician adopts this flat-tax proposal. His opponent is a Democrat who favors increasing the top marginal tax rate to 42 percent. Based on the median voter model, which candidate is likely to win the election.

Corrective Policies for externalities - Unit Pricing for residential garbage collection

Many municipalities use a form of “unit-pricing” for residential garbage collection. The exact form of this pricing varies, but most often includes (bag-tag) programs that require households to purchase clear bags and tag garbage bags as a precondition of pickup. Most of the empirical evidence surrounding these bag-tag programs suggests that the estimated price elasticity of demand for garbage collection is low (approximately –0.10) and that the administrative costs of these programs are large. Critique the effectiveness of these programs in forcing consumers to internalize the externalities generated by solid waste disposal.

Multiplier Effect

I know that the multiplier is 1/(1-MPC), but I am not certain about the MPM. Given MPC = 0.80 and Marginal Propensity to Import (MPM) = 0.5, calculate the impact of: (a) If the Government decides to increase its purchases of goods and services by $100 billion , what would be the increase in aggregate spending? (b) To achieve the same impact on the economy through tax changes, in what direction and how much (in dollars) would the taxes have to change?