Transcript Public Finance & Budgeting Dr. Adnan A. Alshiha Introduction  Public Finance: as field of study is the study of political economy.  Economic: examine the working.

Public Finance &
Budgeting
Dr. Adnan A. Alshiha
Introduction

Public Finance: as field of study is the study of
political economy.

Economic: examine the working of a market
system.

Politics: examine the organization and the
process through which social decision are made.

The two must join in studying the effect of
political (collective decision ) on the economy.
The study of public finance involve two
stages:
 What government try to accomplish and
how efficient are its effort in attaining its
objective?
 How do institutions organized to carry out
collective objectives affect the behavior of
individuals in the market economy

Public Economy

The no-government economy.

The all-government economy.

Government as an economic unit.

Collective goods and services.
The no-government
economy
Assume there is no government
 The economic organization: consists of
two units:
 individual or families
 Business units
 Trade takes place in two markets:
 Market for consumer or final goods &
services
 Market for productive services

The Wheel of Income
Final good and services market
families
Business
Factors of production market
Economic Organization
Private people “trade” Productive services
for final products
 Firms buy productive services and
transform them into final products
 Business exist

Principle of consumer
Sovereignty

One Riyal One Vote

Individuals express their desire based on
their willingness and ability to purchase.
Advantages of Voluntary
Economy

Individual are free within the limit of their
economic power.

High degree of efficiency
Market Disadvantages
Social injustice
 Monopoly
 Instability
 Prices do not correspond as quickly as the
change in individual taste or preference.
 Complex economic interdependence

The All Government
Economy

Collectivity of choice

One man One vote

Collective Consumption

Indivisible goods

Decision is made through political process
The Potential for trade

Individual provided with uniform quantity.

Preferences among individual are different.

If good is Technologically divisible trade
occur.
Collective Organization and
Economic Efficiency

Varying preferences can not be expressed.

Low Efficiency.

Efficiency defined in term of the degree to
which individual preferences are satisfied
Collective Organization and
Distribution

High equality in distribution of goods and
services.
The World of Equal

Preference are the same.

Ability are the same.

no difference in the working of an
economy organized on Market line and
one organized on collective line
Equal Abilities
Differentials Preferences

The relative advantages of market over
collectivist economic organization become
apparent.
Different Ability Equal
Preference

This provides the strongest support for
collectivist organization of the economy.
Different Ability
Different Preference

Contrast based on human nature

Market advocates: Different ability
because in Taste

Government advocates : basic differences
in capacities of human being to produce
economic value.
Saudi Arabia Economy

Mixed Economy (market- collectivized)