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					PADM 5111: Economics and Public Finance
Module I: Governments, economics and policy-making: The broad Institutional Parameters
Raenette Taljaard Senior Lecturer, P&DM

R. Taljaard, P&DM

The Financial Functions of Government (Visser & Erasmus, 2002)
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Less than a century ago, the financial function represented a mere fraction of government‟s involvement in society, whereas the contemporary trend is the ever greater involvement of government. The extent of effective management depends on the scarcity principle – scarcity of means in terms of economic production factors. The availability of means and their utilization is the motivating force behind government‟s intervention with regard to the management of a country. Scarcity of means is the basis of the economic problem: how, within the parameters of limited resources to provide for the needs of all. Role of government has changed from being that of a passive spectator to that of an active participant. Scarcity of means & democracy: “Democracy implies that majority representation results in the most efficient solution to the scarcity problem. In times of elections, for example, tangible manifestations of the problem, ranging from the provision of H2O or health care to the lowering of the rate of inflation and decrease in unemployment figures, may become determining factors at issue.” The economy, then, being the study of scarcity of means and its solution, permeates all of society, its structures and processes.
R. Taljaard, P&DM

Basic Economic systems (Visser & Erasmus 2002)
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Traditional systems – original approach to the scarcity problem. Central(-ised) system Capitalist and the free market system Mixed-economy system – combines strands of above three and prevails in most contemporary industrialized societies: “Mixed-economy systems allow for the full functioning of the economy according to the principles of supply and demand with predetermined intervention – not participation necessarily – from government. In this way, government has come to be considered as one of the primary role-players in modern economic system; enforcing its position by means of democratic authorization. Trotman & Dickerson (1996:4) maintains a mixed economy exists as a political compromise and an economic halfway house between a market economy and one centrally planned. This statement reflects the specific positions the two sectors assume within modern society, as well as the relative functional areas”. Market failure – failures to adequately and efficiently allocate and distribute scarce resources thereby necessitating government involvement. Two approaches prevail with regard to market failure:  Intrinsic properties of the functioning of the market system itself.  Effect of the market system in terms of allocation and distribution outcomes.
R. Taljaard, P&DM

Market Failure (Visser & Erasmus 2002)
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Deficiencies inherent in the Market System:  Unequal access to the market itself – capital is not readily available to all individuals seeking to utilize opportunities.  Unequal access to information/ Asymmetric Information – information regarding factors of production, availability of resources, and a wide variety of other relevant information becomes more accessible.  The „closed-shop‟ syndrome – Particular actions are predetermined decisions aimed at keeping newcomers out of certain arenas.  Collective choice – communal needs require addressing and cannot be left as a vacuum yet the determination of the „value‟ of addressing the need raises difficulties and complexities in attaching monetary terms to the „value‟. Deficiencies resulting from the Market System – some deficiencies result from the way in which the market itself functions. These relate particularly to the inability of the market system to provide collective and socially oriented services, functions and/or products on a communal, rather than an individual basis…These deficiencies, giving rise to the origin of particular fiscal functions of now being performed by government, can be identified separately. Musgrave & Musgrave (1989:6) explain these as:
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The allocation function of Budget policy; Distribution function; Stabilization function.

These three functions of government arose from specific deficiencies in the R. Taljaard, constitute the essence of government market system. These functions P&DM participation in the economy of a country, and, furthermore, provide the essential rationale behind continual government interventionist policy and practice.

Government‟s Fiscal Functions (Visser & Erasmus 2002)
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Three terms are found – „political economy‟; „government‟s financial functions‟ and/or „government‟s fiscal functions‟. „political economy‟ refers to macroeconomic perspectives and dimensions and, therefore, the study of economics, while the latter two are viewed from public management approaches although not necessarily exclusively. Allocation function – Government cannot afford to limit the functioning of the market system in favor of its own allocation and distribution function but can step in and intervene. Distribution function: this function applies to in-kind transfers such as food and cash grant transfers, and subsidies via the Budget – in SA a prominent role here. Stabilization function – sometimes appears at odds with the allocative or distributive functions:  “This function finds its domain within government‟s fiscal policy measures, whereby the fiscal instruments, such as the Budget (expenditure and revenue) and its loan capability are used as measures to execute fiscal policy”.  The key role of the stabilization function concerns the maintenance of economic stability to promote sustained growth and development e.g. maintenance of price stability (aligning fiscal with monetary policy); balancing imports and exports; keeping inflationary pressures at acceptable levels).  “The basic premise if that government exercises its stabilization function in order to steer the economy (according to predetermined decisions) on a course conducive to positive growth and development”. Distribution and allocation functions are executed through the Budget – this means that the success of government distribution and allocation policies is dependent on efficient budget management: “…specific types of expenditure will also reflect to what extent government intends accelerating economic growth or increasing social spending. In reality, government has to be involved in both – not by choice, but through necessity”. Government services range: community services; social or welfare services; economic services; protection services.
R. Taljaard, P&DM

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Contemporary Dilemma‟s (Visser & Erasmus 2002)
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Specific societal conditions exist which increase the difficulty of decision-making in allocation, distribution and stabilization policies. The dilemma in many contemporary societies is that it becomes increasingly difficult to determine the level at which social spending starts limiting economic growth expenditure and where expenditure is detrimental to social needs. A final, but not less important problem is the balance between decisions based on social and moral grounds on the one hand, and those based on economic rationale on the other. “Government‟s responsibilities towards society assume various dimensions…None, however, appears as important as its role in respect of the economy of a country. The extent of this role may be the subject of some controversy, however, government involvement is accepted as part of the operation of modern society”.

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R. Taljaard, P&DM

The Public Sector in the Economy (Black, Calitz, Steenekamp and associates, 2005)
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Scarcity – The income or budget constraints necessitates these choices. In the process, needs are converted into effective demand and resources are allocated and used accordingly – we are therefore interested in the allocation of resources and the distribution of the benefits derived from resource use. What do we study in „public economics‟ – the impact of the public (government) sector on resource allocation and distribution. “In the mixed economy, the balance between the supply of and demand for resources is pursued through the market system or the political system. In the market system prices are the equilibrating mechanism in the interplay between supply and demand which, in turn, are determined by such factors as the preferences and income of consumers, the costs of production factors, and the prevailing technology. Needs which cannot be or are not satisfied via the market system are channeled through the political process. The equilibrating mechanism between supply and demand in the political system is the ballot box; the price is the tax which people pay.” …more than a third of South Africa‟s total resource use is channeled through the political process… The efficiency and equity with which resources are allocated in the public sector and the impact of political decisions on private economic behavior are therefore of paramount importance for the economic performance of the country. Important to reflect that South Africa‟s transition and crafting of new institutions took place against a global backdrop where there was a new emphasis on how the public sector could be restructured so as to free more resources for the development function of government, without jeopardizing macroeconomic stability or increasing the share of government in the economy – preferably reducing it.
R. Taljaard, P&DM

The study of Public Economics & the Public Sector in South Africa (Black, Calitz, Steenekamp and associates, 2005)
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Public economics is the study of the nature, principles and economic consequences of the expenditure, taxation, financing and regulatory actions undertaken in the non-profit making government sector of the economy. Aspects of the definition:  Areas of decision-making (expenditure, taxation, financing and regulation) are instruments of fiscal policy that result in direct mobilization and allocation of scarce resources.  Regulation – the indirect influencing of the allocation of resources.  Fiscal criteria have been developed on which to base decisions in the pubic sector and which may be applied when recommendations on taxes or expenditure allocations are formulated.  The study of the nature and economic consequences of decisions fall into the category of positive economics.  The development of criteria, on the other hand, has to do with normative economics, focusing on what ought to be – normative economics.  Non-profit making – absence of profit maximization as the leading motive for mobilization and allocation of resources. This category also includes NGOs.  The „government sector‟ of the economy also embraces public entities. Public sector in SA comprises all three spheres of Government & public entities: “…we refer to the three tiers of government…as the general government, and to the combination of general government and public corporations as the public sector.” The size of the public sector can be gauged by looking at different indicators including total tax income; total public sector spending; ratio of resource mobilization by Government as a percentage of GDP. “Because of the diverse nature of government activities and the corresponding differences in the factors that determine the allocation and distribution processes in the public sector, we are not only interested in the aggregate size of the public sector, but also in its constituent components”.

R. Taljaard, P&DM

The Public & Private Sector relationship (Black, Calitz, Steenekamp and associates, 2005)
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Government is a supplier of public goods and services & households and business purchase these via taxes. The size of government in the mixed economy is such that its purchase of goods and services exerts important influences on the economy. The way in which government finances its expenditure also has important economic consequences – i.e. the tax system can promote or obstruct equity and efficiency. If there is a budget imbalance (surplus or deficit), the government exercises an influence on the balance between saving and investment, or on the balance of payments. If there is a budget deficit, for example, tax revenue is less than government expenditure, or, and the government has to borrow. The size of its deficit and the way in which it is financed is very important for macroeconomic stability…in the case of a budget surplus the government supplements the savings in the economy. While government can influence the course of the economy, it R. is also extensively affected Taljaard, P&DM happens in the economy. by what

Benchmark model (BM) of the economy: positive and normative approaches (Black, Calitz, Steenekamp and associates, 2005)
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Neoclassical theory of general equilibrium - benchmark model (normative economics aspects) versus the real world of positive economics. Basic assumptions of the Benchmark model: The individual consumer or producer is assumed to be fully informed about the economy, unaffected by the actions of other consumers or producers, completely mobile in the occupational and spatial sense of the word, and always striving to maximize his or her own utility or profit within perfectly competitive markets. An exogenous disturbance will merely set in motion a series of more or less instantaneously adjustments that will automatically return the system to a stable equilibrium. Indeed, in such a blissful state there would be few economic problems to speak of. Economic efficiency is conventionally defined in terms of both allocative efficiency and technical efficiency (or X-efficiency). The BM and allocative efficiency: Allocative efficiency refers to a situation in which the limited resources of a country are allocated in accordance with the wishes of its consumers. An allocatively efficient economy produces an “optimal mix” of commodities.

R. Taljaard, P&DM

Allocative and X-efficiency (Black, Calitz, Steenekamp and associates, 2005)
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In an economy with no public sector, and in which there are no consumption or production externalities, allocative efficiency in the general equilibrium context requires the simultaneous concurrence of three conditions:
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Condition 1: Production activities must be Pareto optimal. Condition 2: Economic efficiency in consumption must occur in such a way that no interpersonal re-allocation of commodities can increase the utility of either of the two consumers (A or B), without thereby decreasing the utility of the other. Condition 3: Producers and consumers achieve equilibrium simultaneously.

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X-efficiency – refers to a situation in which existing resources are utilized in the most efficient manner. X-inefficiency – all economic inefficiencies other than allocative efficiency fall under the term X-inefficiency (organizational slack) X-inefficiency derives primarily from a lack of motivation by production agents, factors such as a lack of information about market conditions, incomplete knowledge of production functions and the incomplete specification of labor contracts etc… Limitations of X-efficiency – Clearly X-efficiency alone is an insufficient measure of economic efficiency since the technically efficient production of goods by itself does not necessarily reflect the needs of consumers. It is possible to define economic efficiency dynamically in terms of given increases in the quantity and/or productivity of the factors of production. The sources of growth are conventionally defined to include savings, investment in the form of both physical and human capital formation, technological inventions and innovations, and increases in the availability of labor of different skills. R. Taljaard, P&DM

Market Failures (Black, Calitz, Steenekamp and associates, 2005)
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Perfect competitive model – a theoretical nicety. Several instances of market failure:  Lack of information – Information Asymmetry  Lags in adjustment – resources are not very mobile and response times invariably lag in responding to shifts.  Incomplete markets – incomplete in the sense that they cannot meet the demand for certain public goods such as, for example, street lighting on their own.  Non competitive markets - e.g. monopoly, oligopoly.  Macro-economic instability – Left on their own markets may take too long to adjust to changing external conditions, and it is often necessary for domestic policy-makers to step in…”The important role played by monetary and exchange rate policies today can be viewed as an attempt on the part of government to deal with the problem of market failure at the macroeconomic level”.  Distribution of income – the most important shortcoming of the neoclassical model of general equilibrium is the fact that it is entirely neutral on the distributional issue. The Public sector then steps into these situations of market failure and fulfills different roles in response: “…market failure can render the benchmark model of perfect competition unworkable in the real world. These failures provide prima facie case for government intervention…”
R. Taljaard, P&DM

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Three Broad Functions of Government (Black, Calitz, Steenekamp and associates, 2005)
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Allocative function:  the allocative function stems from the fact that market failures distorts the allocation of resources in an economy. (Some examples of market failures include – incomplete markets, consumers of pure public goods have a strong incentive not to reveal their demand; consumers of mixed goods would either not reveal their demand for such goods or services or producers would find it impossible to enforce payment of the price; negative and positive externalities cause difficulties and so do “artificial” and “natural” monopolies).  Governments have various instruments (direct and indirect interventions) at their disposal for correcting the allocative distortions resulting from incomplete and non-competitive markets.

R. Taljaard, P&DM

Three Broad Functions of Government (Black, Calitz, Steenekamp and associates, 2005)
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Distributive function:  “Market outcomes tend to exhibit considerable inequality in the distribution of income… no society regards the marketdetermined distribution of income as fair or just”.  “Some commentators have even suggested that a redistribution of income could improve the general wellbeing of society, even if it carried a cost in terms of lower levels of productivity or slower economic growth. In practice, however, there is a considerable disagreement about the appropriate criteria for evaluating the distributive function of government – which remains a key aspect of its role in a modern capitalist economy”.

R. Taljaard, P&DM

Three Broad Functions of Government (Black, Calitz, Steenekamp and associates, 2005)
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Stabilization function:  Stabilization function of government refers to its macroeconomic objectives, which include an acceptable rate of economic growth, full employment, price stability and a sound balance of payments.  In this arena governments have to take corrective action in terms of monetary and fiscal policies – macroeconomic issue.  “The notion that governments have an important stabilization function to fulfill is associated primarily with the Keynesian school of macroeconomic thought that focuses its remedies on the demand side of the economy. The Keynesian approach to stabilization rests on three premises:  The market economy is inherently unstable;  The macroeconomic instability is a form of market failure which is highly costly to an economy; and  Governments are able to stabilize the economy be means of appropriate fiscal and monetary policies.  Critique by New Classical School – belief that the macro-economy is selfadjusting and that government intervention will only worsen matters. Argue that Keynesian economics lacks a proper microeconomics foundation.  Neo-Keynesian school have supplied credible micro-economic foundation and argue that several inflexibilities in the modern economy are perfectly consistent with rational economic behavior and that some of hem (wage and price contracts) can prevent the economy from responding or adjusting rapidly to exogenous shocks.
R. Taljaard, P&DM

Direct vs Indirect Government Intervention (Black, Calitz, Steenekamp and associates, 2005)
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A second way to approach the role of government in the economy is to look at the nature of government interventions. Viewed very broadly, it is useful to distinguish between direct and indirect forms of intervention. Direct government intervention: refers to the actual participation of government in the economy. It includes the government‟s constitutional right to tax individuals and companies, borrow on the financial markets, and execute its budgeted spending programmes through supplying goods or services directly or by financing production. Indirect government intervention: refers to the regulatory function of government. Regulation entails enacting a law or proclaiming a legally binding rule that gives rise to market outcomes that are different from those that would have obtained in the absence of the intervention. It also includes indirect fiscal measures such as indirect taxes and subsidies. “The distinction between direct and indirect interventions can make an important difference to our estimates of the size of the public sector and its effects on the economy. …..and what of Government failure? There is not only market failure according to the authors: “…politicians and government officials behave like their counterparts in the private sector, they are utility maxi misers: politicians want to maximize votes, virtually at all costs, while bureaucrats often strive to maximize the size of their departmental budgets, or “empires”. The net effect is usually an excess supply of public goods and services – or a government that is bigger than its optimal size”.

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R. Taljaard, P&DM

More Market Failure – Public Goods and Externalities… (Black, Calitz, Steenekamp and associates, 2005)
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“Both sources of failure reflect the incompleteness of markets. On their own, free markets cannot meet the demand for public goods or fully account for the external costs and benefits associated with individual actions. These market failures therefore provide a rationale for complementary government actions aimed at improving the allocation of resources”. 2 Key Characteristics of Private Goods:  Rivalry in consumption – Private goods are wholly divisible amongst individuals, which means that one person‟s consumption of the good reduces its availability to other potential consumers.  Excludability – The consumption of a private good can be restricted to given individuals, typically those who pay the indicated or negotiated price. Once private goods have been paid for, ownership (or the assignment of property rights) is certain and uniquely determined. “The benefits of consuming private goods are therefore restricted to those individuals who reveal their preferences for such goods. The rival ness and excludability of private goods force potential consumers to reveal their preferences, thereby setting in motion the competitive processes resulting in allocative efficiency”. Pure Public Goods/ Pure social goods: those goods that display neither of the characteristics of private goods. Pure public goods are indivisible and cannot be divided into saleable units – and are therefore non-rival in consumption. Pure public goods are also non-excludable, that is, it is impossible to exclude particular individuals from consuming such goods. Non-excludability on cost grounds is perhaps more common. The market for pure public goods: “The equilibrium position implies that the condition for the efficient provision of a public good is equality between the sum of the marginal utilities of the individual consumers and the marginal cost. From this condition we can derive the efficient pricing rule for public goods: the sum of the individual prices should equal the marginal cost. ..the equilibrium …is basically a “pseudo” one…due to the inability of consumers to reveal their true preferences”. Who should supply public goods? The actual production of public goods need not necessarily be undertaken by government as such – it could be done on a contract basis by he private sector. The critical difference between public and private goods lies more on the financing side. When we talk of public goods, we essentially refer to the need for public (or collective) financing, rather than private financing through the private financial sector”. R. Taljaard, P&DM

Mixed Goods – Public and/or Private Provision (Black, Calitz, Steenekamp and associates, 2005)
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Mixed and merit goods: Mixed goods possess both private and public good characteristics. Such goods and services are common in the real world and raise several vital questions about the economic role of government. Two classes of mixed goods and services can be distinguished:  Non-rival excludable mixed goods and services e.g. M-Net subscriptions  Rival, non-excludable mixed goods e.g. Vermeulen Street Pretoria example Mixed goods as a group represents a “grey area” and the question of whether they should be supplied by the public or the private sector remains open. The influence of technology on the application of the non-excludability characteristic is particularly important in this regard. But political factors also come into play. In the case of some mixed and even private goods it is possible to apply the exclusion principle, but the goods in question are politically regarded as so meritorious that they are often provided via the national budget. Examples of such merit goods are education and health services…- “…the individual who is buying or receiving them often confers certain “external” benefits on other people, and hence on the broader community…” …most mixed goods are provided by a combination of the private and public sectors.
R. Taljaard, P&DM

Externalities (Black, Calitz, Steenekamp and associates, 2005)
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Externalities or external effects can be either positive or negative:
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Positive externality: the actions of an individual producer or consumer confer a benefit on another party free of charge. Negative externality: the actions impose a cost on the other party for which he or she is not compensated.

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Such actions can be either technological or pecuniary:
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Technological: actions have a direct effect on the level of production or consumption of the “other party”. Pecuniary: actions change the demand and supply conditions, and hence the market prices, facing the other party – do not have a net effect on society, resources are merely transferred from one owner to another, and markets adjust efficiently to changing demand and supply conditions. In either case, however, the beneficiary gets a windfall by not having to pay for the benefit, whilst the prejudiced party gets no compensation at all.

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Negative production externality

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Positive consumption externality

R. Taljaard, P&DM

Solutions to Externality? (Black, Calitz, Steenekamp and associates, 2005)
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Possible Solutions to the Externality Problem – Four interventions that Governments can consider:
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Regulation Pigouvian taxes and subsidies – such taxes and subsidies attempt to internalize externalities, that is, to force parties to include the external effects of their actions in their cost and benefit calculations. By levying a Pigouvian tax on the party whose actions cause the externality, the government can increase the producer‟s marginal private cost to the level of the marginal social cost. Property rights – Ronald Coase, argued that the divergence between marginal private cost and marginal social cost arises due to insufficiently defined property rights over the use of resources. Property rights represent the legal specifications of who owns what goods, broadly defined, including the rights and obligations attendant upon such ownership. The problem of externalities thus boils down to disputes over the use of resources. Thus government‟s role revolves around the maintenance of a judicial system to define and enforce property rights and a market system to lower transaction costs. The Coase theorem is crucially predicated on the twin assumptions of welldefined and enforceable property rights and zero transaction costs. Creation of markets - …the creation of a market in which the government would sell legal permits giving owners the right to pollute. The government would first establish the overall quantity of pollutants which it considers to be an efficient level …and then sell a limited number of individual permits to the highest bidders (e.g. effluent fees)…Producers who are unwilling to pay the market-determined effluent fee would have to reduce their own output of shift to cleaner technologies”.

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Coase theorem – Is it a solution to Market failure by focusing on transaction costs? Economists such as Harold Demsetz (1982), Dahlman (1979) and Toumanoff (1984) have argued that what we conventionally define as market failures, such as externalities and the formation of monopolies, can be explained in terms of the failure of the standard general equilibrium model to consider various forms of transaction costs. In their view, the problem is one of “model failure” not market failure…

R. Taljaard, P&DM

Why Government Succeeds and why it fails (Glazer & Rothenberg 2005)
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Attempt to „marry‟ economics with politics – perhaps a challenging assignment in and of itself conceptually! – the authors probe the policy effects that different institutional arrangements may have on government outputs, particularly given the insights garnered from investigating what an „angelic‟ government can do subject to economic constraints. Identify two primary principles regarding policy success and policy failure:
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A policy succeeds only if government officials really want a programme to attain its stated goals; Interest groups mold policy in ways that defeat the purpose of the programme originally proposed.

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Focus on the manner in which economic constraints structure and influence policy outcomes – four economic constraints are:
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Credibility – …credibility will be especially important when the success of a policy requires government to influence firms and individuals to make costly, irreversible investments… Rational expectations – the collection of and the sophisticated response to information by decision-makers…in general policies readily anticipated and easily manipulated („captured‟) by economic actors are most prone to fail… Crowding out/crowding in - …this occurs when the consumption or production of goods varies with the amount other firms or persons consume and produce…with crowding out, activity is reduced….with crowding in, activity is increased. Multiple equilibria - Multiple equilibria refer to the theoretical and empirical possibility that different outcomes are produced by the same circumstances….the important point is that on some issues government may determine which equilibrium is brought about…some government behavior may be viewed as an attempt to nudge behavior toward a particular equilibrium.

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In the field of macro-economic policy the economic constraints of credibility and rational expectations have often played the biggest role, though other constraints remain relevant.

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Principal tools Government may use to manage the economy- four policy areas:
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Monetary policy – directed at manipulating interest rates or the money supply; Fiscal policy – directed at setting levels of government spending and taxes; Exhortation – directed at persuading economic actors to change their behavior, and; Budgetary policy – directed at raising and lowering levels of government indebtedness by changing the mix of taxes and borrowing used to finance government spending.

R. Taljaard, P&DM

Why Government Succeeds and why it fails (Glazer & Rothenberg 2005)
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In the field of macro-economic policy the economic constraints of credibility and rational expectations have often played the biggest role, though other constraints remain relevant. Principal tools Government may use to manage the economy- four policy areas:
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Monetary policy – directed at manipulating interest rates or the money supply; Fiscal policy – directed at setting levels of government spending and taxes; Exhortation – directed at persuading economic actors to change their behavior, and; Budgetary policy – directed at raising and lowering levels of government indebtedness by changing the mix of taxes and borrowing used to finance government spending.

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“We will find that the features we emphasize – credibility, expectations, crowding out, and multiple equilibria – constrain the effectiveness of macro-economic policy, although different constraints are more important for some policies than for others. In particular, rational expectations are important for monetary policy; crowding out is important for fiscal policy; multiple equilibria and credibility are fundamental for manipulation by exhortation; and rational expectations and crowding out are important for budgetary policy.” When all these economic constraints are taken into account, it appears that government can guide, but cannot control, aggregate economic performance.

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Economic conditions are therefore a product of different types of government intervention amidst the constraints highlighted in the previous slide.

R. Taljaard, P&DM

Can Government Control the Economy? (Glazer & Rothenberg 2005)
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…although monetary policy can stimulate the economy over the short run, rational expectations limit its longterm efficacy. Fiscal policy may increase growth or reduce unemployment, but its stimulative effects are greater when increased government spending does not immediately reduce private spending via crowding. Exhortation may be important when several patterns of behavior would result in equilibria… …the incompleteness of offsetting behavior allows government to stimulate long-run economic growth by running balanced budgets.
R. Taljaard, P&DM

Regulation (Glazer & Rothenberg 2005)
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Scope of Regulation:
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Economic Social Socio-Legal

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Choice of regulatory tools can be heavily shaped by economic constraints Policies designed to direct the production choices of firms or the consumption choices of individuals are regulatory – „command and control‟ vs market mechanisms… “An alternative to the command-and-control regulations…are market mechanisms. Are they the answer?...although regulation through the market has advantages, this approach cannot solve all regulatory problems…the efficiencies of market mechanisms may be undermined by greater difficulties in dealing with economic constraints. Role of Market structure in determining success or failure of regulation – concentration and vertical integration – abilities to thwart regulation and/or intervention. Regulation can success…obstacles related to credibility, expectations, equilibrium selection and crowding out restrict which objectives are likely attainable, influence the type of regulatory instruments that will be effective, and raise the costs of success even under the best conditions”.

R. Taljaard, P&DM

Economic globalization Abedian & Biggs (1998)
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Is there a globalization straight-jacket on domestic policy initiative? If so, what are the implications for, predominantly fiscal policy? What trade-offs, if any, did the newly democratic South Africa make to contend with economic globalization? What are your views? Were any functions of government favored over others in pursuit of stabilization?
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