The State Flashcards
What are the different roles of the state in the economy?
To legislate, regulate and enforce
To set and apply fiscal and monetary policy - foster economic growth, employment and key political aims. Central bank may also help with monetary policy
To provide social insurance or social assistance - large part of spending
Give some examples of where the state provide social insurance or social assistance
Subsidies the cost of university
Looking after older people
Big cultural change in recent years is there are work benefits if you have a low income, the government tops up low levels of incomes.
Provision of healthcare
Define equilibrium wage
Equilibrium wage at which the amount of work employers need is equal to the amount of work people are willing to do.
Whats the main goal of the state and how do they do it in relation to social welfare
Government wants to protect persons, individually and in work, and property.
State modifies free market-based distributions of income, wealth and life chances
What are two very extreme government regimes
The opposite extremes are a complete laissez-faire system (you pay for it or don’t get) or a State command system (government controls large aspects of people’s lives, centrally planned)
Name and explain three different models of state involvement in economics
Social Democratic regime: commitment to equality, generous universal benefits.
Conservative regime: preserve traditional family structures and social hierarchies, decentralized administration - social.
Liberal regime: reinforce markets, low level of benefits.
What’s the Scandinavian model of government
High levels of taxations, high quality education, healthcare etc very little health insurance sold in Scandinavia as public provision is good
Explain a Laissez faire system
Free market with property rights and other necessary rights enforced. Everything is set by supply and demand.
Free markets will build up their own internal infrastructure
They are motivated to do so in response to demand and are priced to meet that demand.
So free market will generate its own level of self-regulation and insurance
How is social insurance different to commercial insurance
Its mandatory
Premiums charged are often unrelated to risk or cost- no differential premium
No need to build up a reserve fund as its pay as you go scheme.
Different from commercial insurers where your premiums are there to hold your benefits and the company has to hold provisions.
Explain the state’s pay as you go scheme
Pay as you go scheme: tax you pay is used for infrastructure, and then when I get older I’m relying on others paying taxes. Your social insurance premiums are not there to hold your benefits basically.
Ex: PRSI
What are the arguments for state involvement
Economies of scale : no marketing costs or renewals
Easy to change benefits/eligibility : Can react to inflation, social needs as pay as you go funding is used.
Risk is different possibly lower: Market-based solutions often introduce other risks
When competitive market cannot form: market not informationally efficient
What are the arguments against state involvement
Poor administration and inefficiencies
Perverse Effects –
benefits produces more claimants than expected.
Jeopardises Values - dependency mentality weakening individual moral fibre
Futile longer term - still have inequalities Ex: wealthier parents getting kids help
Explain discounting
Discounting is a technique used to compare costs and benefits that occur in different time periods…based on the principle that, generally, people prefer to receive goods and services now rather than later. This is known as ‘time preference’.
What is social time preference and the STPR
Value society attaches to the present, as opposed to future consumption. IE. receiving goods and services sooner rather than later, and to defer costs to future generations.
The Social Time Preference Rate (STPR) is a rate used for discounting future benefits and costs, and is based on comparisons of utility across different points in time or different generations.
What financial criterion is used to decide if government action is justifed
The NPV is the primary criterion for deciding whether government action can be justified.
