Chapter 9: Public Finance and Public Choice
1. An interesting class discussion starter is to ask how best to measure the size of government. Should
you count the costs of taxes or the level of spending (when there is a deficit)? What about the cost of
2. You
very difficult to apply. For instance, exactly how much more would a couple have than a single person to
have the same ability to pay? What about people with children versus those without? What about
families with teenagers versus families with preschoolers? What about those with large and unexpected
medical bills?
3. You could extend the Social Security example to point out that each time the system is expanded, it
allows those near retirement to benefit without paying almost any of the cost, resulting in substantially
4. Make sure that students recognize that government can be the source of market power (e.g., public
5. It is important to emphasize in this chapter that public choice analysis has the same intuition as market
analysis, but the ideas are harder to test because it is harder to define the dominant incentive stories in
6. A good illustration of public choice analysis is the government s preference for hidden taxes (e.g., the
7. A useful public choice illustration of information differences between the public and private sectors is
8. The following can be a good way to illustrate how self interest works in both the market sector and the
government. Pick a student and assert that he wants to get rich. Ask him whether getting richer through
9. Remind students that fixing a particular market failure or other problem with government funds
means that another problem must be created somewhere else by the government s need to tax others to
acquire the necessary resources, creating welfare costs where the resources were drawn from.
10. A good illustration of public choice is how some people can claim Social Security is a regressive tax
(as a tax alone, it is proportional up to a wage earnings cap, but zero beyond that cap), but when looked
11. et out the
vote campaigns can be viewed as an attempt to change the identity of the median voter, thereby
changing the median voter position.
12. You may want to talk about gerrymandering with regard to the median voter result. If you can create
the district.
13. In discussing the median voter result, it is worth asking students what difference it would make if the
14. It may be worth noting that the special interest effect not only explains why inefficient programs get
created, it also explains why it is so hard to kill special interest programs once they are created (in fact,