Public Finance & Budgeting

1. Public Finance & Budgeting Dr. Adnan A. Alshiha

2. Introduction • Public Finance: as field of study is the study of political economy. • Economic: examine the working of a market system. • Politics: examine the organization and the process through which social decision are made. • The two must join in studying the effect of political (collective decision ) on the economy.

3. The study of public finance involve two stages: • What government try to accomplish and how efficient are its effort in attaining its objective? • How do institutions organized to carry out collective objectives affect the behavior of individuals in the market economy

4. Public Economy • The no-government economy. • The all-government economy. • Government as an economic unit. • Collective goods and services.

5. The no-government economy • Assume there is no government • The economic organization: consists of two units: • individual or families • Business units • Trade takes place in two markets: • Market for consumer or final goods & services • Market for productive services

6. The Wheel of Income Final good and services market families Business Factors of production market

7. Economic Organization • Private people “trade” Productive services for final products • Firms buy productive services and transform them into final products • Business exist

8. Principle of consumer Sovereignty • One Riyal One Vote • Individuals express their desire based on their willingness and ability to purchase.

9. Advantages of Voluntary Economy • Individual are free within the limit of their economic power. • High degree of efficiency

10. Market Disadvantages • Social injustice • Monopoly • Instability • Prices do not correspond as quickly as the change in individual taste or preference. • Complex economic interdependence

11. The All Government Economy • Collectivity of choice • One man One vote • Collective Consumption • Indivisible goods • Decision is made through political process

12. The Potential for trade • Individual provided with uniform quantity. • Preferences among individual are different. • If good is Technologically divisible trade occur.

13. Collective Organization and Economic Efficiency • Varying preferences can not be expressed. • Low Efficiency. • Efficiency defined in term of the degree to which individual preferences are satisfied

14. Collective Organization and Distribution • High equality in distribution of goods and services.

15. The World of Equal • Preference are the same. • Ability are the same. • no difference in the working of an economy organized on Market line and one organized on collective line

16. Equal Abilities Differentials Preferences • The relative advantages of market over collectivist economic organization become apparent.

17. Different Ability Equal Preference • This provides the strongest support for collectivist organization of the economy.

18. Different Ability Different Preference • Contrast based on human nature • Market advocates: Different ability because in Taste • Government advocates : basic differences in capacities of human being to produce economic value.

19. Saudi Arabia Economy • Mixed Economy (market- collectivized)