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4_Lecture2024

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4_Lecture2024

Uploaded by

andreilavinia2020
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PUBLIC FINANCE

Lecture 4
Chapter 2: Public finances and the role of the
state
Associate Professor Ph.D Ramona MARA
Finance Department
Email: [email protected]
Chapter 2: Public finances and the role of
the state
1. The public sector in a mixed
economy
2. Public finances and the role of
the state
3. Public finance versus private
finance
4. Public finance and the state-
historical evolution
1. The public sector in a mixed economy
https://www.investopedia.com/terms/m/mixed-economic-system.asp

What • The part of an


means economy that is
public controlled by the
state.
sector?

What is a • Mixed economy is that


mixed economy in which both
government and
economy? private individuals
exercise economic
control
1. The public sector in a mixed economy
1. The public sector in a mixed economy
1. The public sector in a mixed economy
 The public sector is a part of society that is in the public’s
ownership, in which decisions are made by public choice, is
under continuous public control, and exists for the purpose of
public interest fulfillment and common affair administration.

 The institutions and organizations of the public sector are in


whole or in part funded by public funds and are connected
with the fiscal system. Other specific characteristics include
their ownership, management system, provision of their
products to consumers, etc.

 The public sector fills the gap unoccupied, for various reasons,
by private companies within their business activities.
1. The public sector in a mixed economy
1. The public sector in a mixed economy
A mixed economy is defined as an economic system
consisting of a mixture of either markets and economic
planning, public ownership and private ownership,
or markets and economic interventionism.
However, in most cases, "mixed economy" refers to market
economies with strong regulatory oversight and governmental
provision of public goods, although some mixed economies
also feature a number of state-run enterprises.
“Mixed economy is that economy in which both
government and private individuals exercise
economic control.” –Murad.
2. Public finances and the role of the state
According with Adam Smith (The Wealth of
Nations, 1776) the functions of the government
can be divided into following three categories:
(a) To provide security to nation against war
and injustice of other nations.
(b) To maintain peace, justice and system
among citizens, and
(c) To build and conduct such public functions
and public institutes, which can be highly
beneficial for whole society.
2. Public finances and the role of the
state
Approximately since the 1930s, the state’s role in the
economy has been noticeably gaining in
importance; therefore the traditional functions of
the state (legislative, social, security, etc.) have
been supplemented with the economic function
(sometimes called the fiscal function or the
public finance function).
These functions include according with
Musgrave(1959):
Allocation;
Redistribution ;
Stabilization activities.
State functions (Musgrave)
• is a microeconomic perspective on the role of
the public sector.
• the aim is to promote an efficient allocation of
resources
1. Allocation • Allocate resources in public sector.
• Involves making decisions on public expenditure
programs to provide the public goods and services
citizens desire at tax/fee rates they are willing to pay.
• is also a microeconomic perspective:
• improving justice (or fairness) in society as a whole:
2. • Guaranteeing equal opportunities to all citizens, namely
providing, social security or social assistance programs.
Distribution • Overcoming income inequalities by achieving an equitable
distribution of income.

• is a macroeconomic perspective on the role


of public sector.
3. • Fiscal policy should promote:
• Employment
Stabilization • Price stability
• Economic growth
3. Public finance versus private finance
Public sector versus private sector
https://www.youtube.com/watch?v=NJY6P7t-yD0

https://
www.youtube.com/watch?v=Ub7kxmJqQvo&t=19s

Exercise 1:

 In a comparative view try to identify the distinction


between public finance and private finance
concerning: sources for funds, destination of funds,
objectives, needs, rules and legislation.
3. Public finance versus private finance
4. Public finance and the state-historical evolution
4. Public finance and the state-
historical evolution
 The Essential Adam Smit
h: The Role of
Government
 https://
www.youtube.com/watch?v
=lN9KJOBFsgk
 The Invisible Hand

 https://
www.youtube.com/watch?v
=NdUa2zrJL0g
 https://
www.youtube.com/watch?v
=vgK7LsWmWxI
4. Public finance and the state-historical
evolution
Keynes theory:
https://
www.youtube.com/w
atch?v=0EjOeHrBhw
0
4. Public finance and the state-historical
evolution
4. Public finance and the state-historical
evolution

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