Transcript Lecture 9

PA 546 Constantine Hadjilambrinos
User Fees, User
Charges and Sales
Lecture 9
November 1, 2005
PA 546 Constantine Hadjilambrinos
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User fees—government sales of licenses to
engage in otherwise restricted or forbidden
activities.
User charges—charges for voluntarily
purchased publicly provided services.
Sales—revenues from sale of goods and services
provided by government (government
monopolies, government-controlled toll goods,
etc).
PA 546 Constantine Hadjilambrinos
Fees, charges and revenues from sales of goods
and services are a popular way to raise revenue
because they do not increase the tax burden.
 Revenue garnered directly from users of
government services—meets equity criteria.
 Revenue signals level of demand—can enhance
efficiency of government provision of goods
and services.
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PA 546 Constantine Hadjilambrinos
May induce government to impose fees that
make use of services impossible for low income
citizens.
 May induce government to provide revenueproducing goods and services to the detriment
of other government services.
 Government may be less efficient than the
private sector in providing revenue-generating
goods and services.
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PA 546 Constantine Hadjilambrinos
User Fees and Licenses
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Fees must be paid by whomever wants to engage
in activity that requires a permit/license.
Fees do not purchase any government services.
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Vehicle registration fees, drivers’ licenses—necessary
for vehicle operation but do not purchase any
services.
Business license fees—different than franchises
PA 546 Constantine Hadjilambrinos
User Charges
Charges paid for delivery of a good or service to a
relatively small number of individuals or
businesses.
Conditions: Benefit separability (identify who gets what)
Benefit chargeability (ability to “meter”)
Benefits should be “private” rather than “public”
(education?)
Particularly appropriate when substantial waste
would result from under-pricing.
PA 546 Constantine Hadjilambrinos
Advantages:
Charge offers test of demand for goods and
services—government can respond.
 Charge offsets the cost of delivery of goods and
services.
 Charge allocates the cost of delivery equitably.
 Charge may correct cost-price signals in private
market.
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PA 546 Constantine Hadjilambrinos
Disadvantages:
True public goods do not lend themselves to
user charges.
 Re-distribution objectives may be thwarted.
 Charge may be too expensive to collect.
 There may be political opposition.
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PA 546 Constantine Hadjilambrinos
Setting prices for user charges is often difficult—
trial and error.
If similar privately provided goods/services,
government can set price on basis of price of market
 Cost markup by a certain percentage.
 If possible, prices should be set on a “unit” basis—
cost should reflect quantity used.
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PA 546 Constantine Hadjilambrinos
Revenue from Public Enterprises (Public
Monopolies)
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Utilities (water, sewer, garbage, electricity/gas,
transport)
Liquor stores
Lotteries, gambling enterprises (voluntary
revenue, but highly regressive)