Public finance Midterm 1

Fred Foldvary

            Criteria for grading:

1) presentation (legibility, language, legibility, organization);

2) how completely it covers the topics;

3) focus (avoiding irrelevancies and redundancies and fluff);

4) knowledge of the relevant theory, facts, and terms, and defining of key terms;

5) warranting (by clear, sound, organized reasoning).

each question, 6% of total grade = 60 points.

1. Explain whether in a pure free-market economy, with enforced property rights on all resources, there would be significant negative externalities such as pollution.

2. Suppose you were the manager of a retirement community of several thousand persons. The board of directors wish to provide a bus system for the community. What is your recommendation on how much to charge the users? If there is a user charge, is it most efficient for the community to charge per trip, with a monthly pass, or how else? What is your recommendation for paying the cost, if any, not obtained from user charges?

3. What is the Constitutional authority for the government of the USA to levy a corporate income tax, and a personal income tax, and what are the constitutional limitations for both taxes?

4. If it is more efficient to tax polluters than to regulate them, and if we can get an additional benefit from replacing income taxes with pollution taxes, why is this not done in the USA?

5. The median voter can determine an election outcome, but special interests also determine policy. Explain how special interests can obtain subsidies favorable to them but which do not benefit the public, if the subsidy is not in the interest of the median voter.