Transcript Ch. 11: Government Expenditures & Revenues

CH. 11: GOVERNMENT
EXPENDITURES & REVENUES
CIE3M
M. Nicholson
Reasons for Government Involvement in the
Economy
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Public goods – good or service that everyone
benefits from regardless if they have paid for it or
not (e.g. national defence)
Externalities – good or bad side effects of
production (e.g. golf course vs. pollution)
Reasons for Government Involvement in the
Economy
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Harmful and Beneficial Goods – cigarettes vs.
education
Distribution – help make it a fairer world by taking
from the rich and giving to the poor
Economic Stability – stable prices and full
employment
Growth in Government Spending
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Government spending has increased greatly since
the Great Depression of the 1930s
Canadians have come to expect gov’ts to take care
of them to prevent another economic depression
from ever occurring again
Canadians are a mostly urban people who are
highly specialized & therefore not self-sufficient like
their farming ancestors
Government Expenditures
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Municipal – local roads, sewers, police, garbage
disposal, libraries, schools
Provincial – Fed Gov’t transfers money to pay for
goods & services such as health & education
frequent deficits have led to large provincial debt
& interest payments (1/7th of exp.)
Government Expenditures
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2.
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4.
Federal – massive growth from the late 70s to the
mid 90s
transfers to persons – Old Age Security, UI
transfers to other levels of governments – make
things even
subsidies – Natives, farmers, international aid
payments to crown corporations (e.g. CBC)
Government Expenditures
5. defence – Cold War over so declining
6. government operations – judicial, government
departments
7. other – veterans allowances
8. public debt charges – by the mid 90s the largest
government expenditure
Government Revenues
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Taxes are the key source of government revenue
and come in many different forms
direct – e.g. HST consumers can see
indirect – e.g. excise tax is hidden in the price of gas
progressive – higher % for higher income
proportional – same %
regressive – lower income pays %
Government Revenues
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Municipal – property taxes contribute 90%
Provincial – direct taxes (33%), indirect taxes
(25%), federal transfers (20%)
Federal – income tax, corporate income tax, UI,
GST, excise (luxury/sin) tax, duties, government
investment
Controlling Federal & Provincial Debts &
Deficits
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4.
Growth of the Federal Public Debt – 1966 ($27.4
billion)  1995 ($546 billion)  Present Debt /
Debt Clock
Effects of the Federal Public Debt
redistribution of income
debt held by foreigners
cost of collecting tax
danger of the debt feeding on itself
Controlling Federal & Provincial Debts &
Deficits
Effects of the Federal Public Debt (cont’d)
5.crowding out investment
6.burden of future taxpayers
7.restrictions on government spending and taxing
policy
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Controlling Federal & Provincial Debts &
Deficits
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2.
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Curbing the Federal Debt and Deficit
cut federal government expenditures – politically
unpopular
increase revenues – more taxes (e.g. GST)
rely on economic growth and rising incomes
Provincial Debts and Deficits – peaked in 1993
Government & the Circular Flow
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Gov’t intervenes in the market system because
households & businesses sometimes have extremes in
their relationship causing instability (e.g.
unemployment, inflation)
Government & the Circular Flow
Government Regulation of Business
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Prevent reduction in competition
Regulate prices and production – Rogers Cable,
electricity, eggs, milk
Health, safety and the environment – building
codes, restaurants
Crown Corporations - CBC