The Public Sector

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The Public Sector
The term public sector refers to federal,
state, and local government units.
Here we want to examine the economicfunctions
carried outby the public sector units.We also
want to describegovernment expendituresand
receipts
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Providing the legal framework

• Enact and enforce laws governing product and
  factor market transactions.
• Enact and enforce laws to protect the
  environment, ensure workplace and product safety,
  truth in advertising, and provide other social
  regulation.
• Contract enforcement

The public sectormust establish and enforce the
rulesof the game.
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Enforcing rights to "intangible" property
Europes Software Piracy Rankings, 1994
Source Business Software Alliance
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Promoting competition in the marketplace
The JusticeDepartmentsprosecution of
Microsoft is anexample of antitrust
enforcement.

• Enforcement of antitrust statutes (such as the
  Sherman Act).
• Regulation of telephone, electricity, natural
  gas, or cable TV rates.

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Redistribution of income
The market cant be trusted to produce an
equitable, or in any case,politically
acceptable distribution of income
Income redistribution is accomplished by means of
transfer payments. These include

• Social security payments
• Aid to the permanently disabled
• TANF
• Medicare
• Medicaid
• Unemployment compensation

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Provision of Public Goods
Public goods aregenerally impossibleto withhold
from thosenot willing to pay for them.
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Free riders

• Free riders are those who enjoy the benefits of
  public goods without paying for them.
• Public goods cannot be supplied by profit seekers
  since there is both opportunity and incentive to
  free ride.
• Fees for boating licenses and property taxes are
  two ways government can limit free riding.

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Correcting for externalities or spillover costs

• Negative externalities (or spillover costs)
  result when private production or consumption
  activity imposes costs on third parties.
• Examples include acid rain, noise and vibration
  near airports, water pollution, cigarette smoke,
  mosquitoes in Jonesboro, rice pesticides that
  damage tomatoes.

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How does government correct for externalities?

• EPA emissions standards for cars pursuant to the
  Clean Air Act.
• EPA regulations on sulphur-dioxide emissions from
  coal-fired power plants.
• Effluent fees, taxes, and fines imposed on
  polluters.
• Restrictions on smoking in public places.
• Cigarette taxes.

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Economic Stabilization
The Employment Act of 1946 makes the
Federalgovernment responsiblefor promoting
maximum production, employment, and purchasing
power