WHAT ARE THE MOST IMPORTANT POINTS TO REMEMBER ABOUT CHAPTER TWO?
Main Points and Ideas:
1. Public Budgeting: this is dependent on the perception of the size of public sector, i.e., it depends on politics
to determine what government should or should not do.
2. Some advocate suggests that government must be small to protect people from tyranny and ensure
individual independence, whereas others advocate that there are social problems the government cannot but
fund, and that these problems cannot be solved by the private sector–if they are not caused by the private
sector in the first place.
3. Government has been expanding in response for people’s needs and because it has the propensity
to grow. For example:
o Need for collective goods.
o Demographic changes.
o Externalities.
o Changes in living patterns.
o Economic hardship.
o High risk situations.
o Technological change.
4.Government expansion is unfavorable for some mega projects which requires huge resources (e.g., tangible,
and intangible ones).
5.Expenditures are either exhaustive or non-exhaustive; if they are exhaustive, this means the government uses
resources such as facilities that could have been otherwise used by the private sector, but if they are non-
exhaustive, governments redistributes or transfers resources instead of consuming them, or uses the
resources for future investment.
6. Government can have great impact on the private sector, for instance military defense industry.
The distinction between private and public sector is not clear in many cases such as in the case of education–
subsidies funding for private higher education
7. The magnitude and growth of government:
o One way to assess the size and growth of the government is by comparing the different governments with
each other and with the private sector (revenues/GDP expenditures)
o Another way to assess the size of the government and its growth is through examining the number of public
employees.
8. The main sources of income for the government are:
(a) individual income taxes
(b) social insurance taxes
(c) corporate income taxes (beside other sources)
9. Government spending can be either discretionary, i.e., spending on core functions of the government and
their operations (e.g., defense), or mandatory spending (e.g., comes through a permanent law such as social
security).
WHAT ARE THE MOST IMPORTANT POINTS TO REMEMBER ABOUT CHAPTER TWO?
1. What is the primary source of revenue for the government?
Direct and indirect taxes.
2. What are some examples of today’s government taxing and spending policies that can have significant
effects on future generations?
Making adequate health care affordable and available to all, investments in transportation and
communication infrastructure, funding public education at all levels, and the accumulation of excessive
amounts of debt.
3. What are the two most common ways to measure the size and growth of government over time?
The total number of government workers and total budget expenditures (percentage of GDP).
4. What is the major source of revenue for the US federal government?
The individual income tax.
5. What distinguish private from public sectors? What are Governments’ reasons for growth?
Methods to measure public and private sectors:
a) Sizes (b) Revenues (c) Expenditures and (d) Employees
Reasons for Government growth and budget needs:
a) Need for collective goods:
General security, disaster plan recovery, crisis management, education, health care, etc.
b) Demographic changes:
Increase in total population, newborn, and elderly people, etc.
c) Changes in living patterns:
Move from rural to urban places, mobility, migration, etc.
d) Externalities:
Government intervention to control or monitor prices.
e) High risks situations:
Private sector very careful, government more risk taker, etc.
f) Economic hardships:
Inflation, recession, depression, high unemployment rate, etc.
g) Technological changes:
Equipment, systems, and tools, internet speed, media, etc.
6. What are the main differences between non-exhaustive and exhaustive expenditures and what are the
sources of government main incomes?
Non-exhaustive expenditures: allocating small budgets or limited resources, etc.
Exhaustive expenditures: buying medical equipment, building roads, investing in new projects, etc.
Remark: it is worth noting that the main sources of income for the government is: (a) individual income
taxes, (b) social insurance taxes, (c) corporate income taxes in addition to (d) imports and exports, etc.
