Fundamental Principles of Public Finance

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Transcript Fundamental Principles of Public Finance

Revenue From User Fees, User
Charges, and Sales by Public
Troy University
PA6650- Governmental Budgeting
Chapter 11
• Taxes are paid because governments have the power of
• Governments sell some goods and services to willing
buyers and these transactions are not coercive, but are a
voluntary exchange
• Three categories:
– USER FEES (e.g., licenses)
– USER CHARGES (e.g., services)
– Fiscal-monopoly and utility revenues (state-owned utilities, liquor
stores, lotteries)
• Page 462 Table 11-1 – Sales revenue patterns
Federal Income
• The federal government collects quite a bit
of revenue from licensing and other
• FCC almost entirely funded from spectrum
• Postal service also a prime example
• Page 465 Table 11-2
User Fees and Licenses
• License taxes (hunting, massage parlor, DMV)
– Licenses are coercive…must have them to operate
– Not a user charge…not buying any government
services or goods
– Not a franchise fee…open to anyone who wants
it…no specific rights or responsibilities
• Licenses can be for revenue and for regulation
– Revenue…no inspections or business regulations
– Regulation…many controls, difficult to obtain
• Fees
– Privilege granted by government, may offset cost of
User Charges
• User charges can induce production and
consumption efficiency while gauging
preferences and demand for government
• Two necessary conditions:
– Benefits separability (certain individuals/firms benefit)
– Chargeability (economical methods for exclusion)
User Charges
• Advantages
– They register and record public demand for a service
• City tennis instruction, swimming pool
– User charges improve financing equity (prohibits nonresidents and tax-exempt users)
– Improves operating efficiency
• Only justifies what citizens want and are willing to pay for
– Corrects cost and price signals in the private market
• Traffic control
User Charges
• Limitations
– Many government services don’t fit the criteria
• Fire protection, snow plowing
– Services may intentionally subsidize low-income or
disadvantaged recipients
• Transit
– Some charges may be difficult to collect
• Beach badges
– Political issues
• “If I’m paying taxes, I deserve the service without being
charged again!”
– Unpopularity (people that don’t pay get excluded)
• “the city turned my water off!”
User Charges
• Charge Guidelines (Mushkin & Bird)
– Household support functions
• Water
• Refuse collection
• Sewerage
– Industrial development support
• Airports
• Parking
• Special police/fire services
– Amenities
• Specialized recreational facilities
• Cultural facilities
– Services provided to tax-exempt entities
Page 474 Table 11-3
Public Monopoly Revenue:
Utilities, Liquor Stores, and
Gambling Enterprises
• Government Utilities
– Water
– Electrical power
– Transit
– Gas
– Internet
Public Monopoly Revenue:
Utilities, Liquor Stores, and
Gambling Enterprises
• Liquor Stores
– 17 states
– State-owned and operated
Public Monopoly Revenue:
Utilities, Liquor Stores, and
Gambling Enterprises
• Gambling Enterprises ($72.8B revenue in 2003)
– Highly taxed and restricted
– State runs some of it
– Lotteries (5 types)
Passive (pre-numbered tickets, then a drawing)
Instant (rub-off and you win or lose
Numbers (pick your own, then a drawing)
Lotto (pari-mutuel, group of numbers from a larger field)
Keno (continuous, variety of bets)
Public Monopoly Revenue:
Utilities, Liquor Stores, and
Gambling Enterprises
• Lotteries
– Painless and enjoyable?
– Only contribute a small amount of revenue
– Expensive (security and advertising and
– Proceeds are volatile
– Regressive burden to poorer families
– Values…should the state be in this business?
• Public prices can be an attractive alternative to
• Public prices can add equity
• Cities are the primary user of user charges
• Lotteries produce more fanfare than revenue
• Some monopolies have questionable public