An Introduction to Public Finance

5551 words 23 pages
Public Finance

2009-2010 spring semester

Chapter 1 - Introduction

1. a. McCain’s statement is consistent with an organic conception of government. Individuals and their goals are less important than the state.

b. Locke makes a clear statement of the mechanistic view of the state in which individual liberty is of paramount importance.

c. Chavez’s statement is consistent with an organic view of government. The individual has significance only as part of society as a whole.

2. Libertarians believe in a very limited government and are skeptical about the ability of government to improve social welfare. Social democrats believe that substantial government intervention is required for the good of
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Other things that affect work effort would impact both the control group and the experimental group, so any difference in work effort between the two groups could be attributed to the change in marginal tax rates.

2. This is a valid criticism of the exercise study. It reflects the problem of causality. Two things may be correlated, but it can be difficult to determine which causes the other. The remedy would be to set up a study in which individuals are randomly assigned to groups. In an experimental study, the group engaged in running would not be correlated with good health or a strong heart, so if they enjoyed longer life expectancy, it could be attributed to running instead of other factors.

5. The scenario set up by the change in unemployment lends itself to a difference in difference approach, in which the first difference is across time and the second difference is across income level. The researcher would measure the change in unemployment duration for high earners between the period of lower benefits and the period of higher benefits, and then compare this change to the change for the low earners. The treatment group would be the high earners and the control group would be the low earners. The assumption that must hold for unbiased estimates is that in the absence of the policy change, both the treatment and control groups would have experienced the same


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