Chapter 2: Public Sector Size Flashcards by Justine Matthew Tibagacay

Refers to the part of the economy that is controlled, owned, and operated by the
government.

public sector

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Components of the Public Sector

Government Institutions

Public Enterprises

Social Services

Regulatory Agencies

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National, regional, and local government bodies responsible for
policymaking, administration, and public service delivery

Government Institutions

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State-owned or government-controlled businesses that operate in industries
like utilities, transportation, and healthcare.

Public Enterprises

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Institutions that provide essential services such as education, healthcare, public
safety, and social welfare.

Social Services

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Organizations that enforce laws and regulations to ensure fair business
practices, environmental protection, and consumer safety

Regulatory Agencies

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Examples of public sector activities include:

Infrastructure Development – Building roads, bridges, and public transport systems.
▪ Education Services – Running public schools and universities.
▪ Healthcare Services – Operating public hospitals and clinics.
▪ Law Enforcement and Security – Maintaining police, military, and emergency services.
▪ Public Utilities – Providing electricity, water, and waste management services.

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It is a system or group of institutions that exercises authority and governance over a specific
territory or population.

government

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It consists of elected and appointed officials who implement laws, manage resources,
and deliver essential services. The government operates at different levels: national, regional, and local.

government

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Different countries adopt various forms of government based on political and economic ideologies.

Democracy
Autocracy
Socialism
Mixed Economy

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Government by elected representatives (e.g., Philippines, United States)

Democracy

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Centralized power held by one leader or ruling party (e.g., North Korea)

Autocracy

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Government controls major industries and redistributes wealth (e.g., China, Cuba)

Socialism

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A combination of government and private sector participation in the economy
(e.g., most modern economies, including the Philippines)

Mixed Economy

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Philippine government involves three separate and sovereign yet interdependent branches:

legislative branch (the law-making body),

the executive branch (the law-enforcing body), and

the judicial
branch (the law-interpreting body).

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It is responsible for enforcing and implementing laws through various government
agencies, departments, and local government units and is headed by the President.

Executive.

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It is tasked with creating, amending, and repealing laws, as well as approving the
national budget and conducting oversight functions. It is composed of the Senate and the House of
Representatives

Legislative.

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The one that interprets laws and ensures justice by overseeing lower courts such as the
Court of Appeals, Regional Trial Courts, and other specialized courts. It is led by the Supreme Court

Judiciary.

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Types of Government Activities

(1) production of goods and services, (2) regulation and
subsidization of private production, (3) purchase of goods and services and (4) redistribution of income

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The government is responsible for the establishment of the legal framework within which business firms and
individuals can engage to perform economic activities.

Providing a Legal System

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GOCCs stands for

Government-Owned and Controlled Corporations (GOCCs),

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where state-owned enterprises are transferred to private ownership to improve efficiency and
reduce the financial burden on the government

privatization,

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occurs when private enterprises are placed under public control, often to ensure the availability of critical services or regulate key
industries.

nationalization

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The Philippine government, through its GOCCs, play a huge role in productive activities in several industries:

Energy and Natural Resources.
Agriculture and Food Production.
Transportation and Infrastructure.
Water and Public Utilities.
Banking and Finance.
Housing and Urban Development.

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Stiglitz & Rosengard (2015) mentioned the following ways in how the government influences private production:

▪ Subsidies and Taxes. ▪ Government Credit. ▪ Regulating Business.

The government subsidizes private production through direct payments to producers and indirect payments through the tax system.

Subsidies and Taxes.

The government seeks to lower the cost of doing business by offering a government credit system and/or mechanism below the market interest rate to encourage the private firms to borrow.

Government Credit.

The government regulates business activity in an attempt to protect workers, consumers, and the environment, to prevent malpractice and prevent discrimination.

Regulating Business.

two major categories of explicit redistribution programs:

1. Public Assistance Programs. 2. Social Insurance Programs.

These are means-tested programs that provide aid to the poorest of the poor who qualify based on their income level and economic need. Examples include cash transfer programs, food subsidies, and housing assistance.

Public Assistance Programs.

These provide financial benefits to individuals based on their contributions or participation in the workforce. This includes pensions for the retired, disability benefits for those unable to work, and healthcare coverage for the sick.

Social Insurance Programs.

A key tool for redistribution is ________, which involve transferring money from one group to another without requiring the provision of goods or services in return.

transfer payments

– A conditional cash transfer program that provides financial aid to low-income families, particularly those with children in school.

Pantawid Pamilyang Pilipino Program (4Ps)

These institutions provide pension and insurance benefits for private and government employees, respectively.

Social Security System (SSS) and Government Service Insurance System (GSIS) –

– A social health insurance program that ensures affordable healthcare services for Filipinos, especially the underprivileged.

PhilHealth (Philippine Health Insurance Corporation)

Provides financial assistance to low-income households affected by economic reforms, such as tax adjustments under the TRAIN Law.

Unconditional Cash Transfer (UCT) Program –

refers to public spending on goods and services and is a major component of the GDP.

Government expenditure

A standard measure of the size of the total economy is _______, which is a measure of the value of all the goods and services produced in the economy during a given year.

Gross Domestic Product (GDP)

public expenditures are classified into several categories that reflect the government’s allocation of financial resources for different purposes

▪ Capital expenditures or outlays (CO) ▪ Current Operating Expenditure (COE) ▪ Net Lending ▪ Debt Amortization

These are the expenses whose usefulness lasts for more than one year, and which add to the assets of the Government, including investments in the capital of government-owned or controlled corporations and their subsidiaries. Key components include infrastructure projects, land acquisition and construction, equipment and machinery, and research and development.

Capital Outlays.

These are the regular, ongoing costs associated with the day-to-day functioning of the government. These include the purchases of goods and services in current consumption the benefit of which does not extend beyond the fiscal year.

Current Operating Expenditure (COE).

The two components of current expenditures are

personal services (PS) and maintenance and other operating expenses

include the salaries, wages, allowances, and benefits of government employees.

Personnel services

covers the costs for the operation and maintenance of government offices, agencies, and programs. It covers things like utilities (electricity, water), office supplies, transportation costs, travel allowances, and maintenance of government assets like vehicles and facilities.

MOOE

This covers the financial support provided by the government to certain entities, such as state-owned enterprises (SOEs), local government units (LGUs), or other institutions, often in the form of loans or guarantees.

Net Lending.

It covers the repayment of the principal and interest on the government’s outstanding debt. This category includes the amounts the government must pay each year to reduce its overall debt burden, which can include both domestic and foreign loans.

Debt amortization.

refers to the income that the government collects from various sources to finance its activities, such as the provision of public goods and services.

Government revenue

In the Philippines, government revenue is typically divided into

tax revenues and non-tax revenues.

The main source of government funds is

taxes.

TRAIN law stands for

Tax Reform for Acceleration and Inclusion (TRAIN) Act

The individual ________ system in the Philippines is progressive, with rates ranging from 0% to 35% for individuals, depending on their income level.

income tax

is a major source of revenue, with a standard rate of 12%.

Value Added Tax

The _________ is designed to be paid by consumers, but businesses collect and remit it to the government. There are some exceptions, such as basic goods like rice and education.

VAT system

These are imposed on specific goods, such as tobacco, alcohol, petroleum products, and automobiles. The government has raised excise taxes in recent years, particularly on tobacco and alcohol, as part of the sin tax reforms to both raise revenue and discourage harmful consumption.

Excise Taxes.

The Bureau of Customs is responsible for collecting tariffs on imported goods.

Customs Duties and Taxes.

Local government units (LGUs) are responsible for levying _______ on land and buildings within their jurisdiction.

property taxes

make up a smaller share of total government revenues, but they are still important for diversifying the sources of funds.

Non-tax revenues

The Philippine government owns numerous corporations, which generate revenue through their operations.

Government-Owned and Controlled Corporations (GOCCs.

The government charges various fees for services rendered by government agencies, such as licensing, registration, permits, and penalties. For example, the Department of Foreign Affairs collects fees for passport issuance, and the Land Registration Authority charges fees for property title registration.

Fees and Charges.

Non-Tax Revenues

Government-Owned and Controlled Corporations (GOCCs. Fees and Charges. Privatization Proceeds. Borrowing. Grants and Aid.

It is the financial plan of a government for a given period, usually for a fiscal year, which shows what its resources are, and how they will be generated and used over the fiscal period.

government budget

It is important because it enables the government to plan and manage its financial resources to support the implementation of various programs and projects that best promote the development of the country.

Government budgeting

Revenues are equal to expenditures.

Balanced Budget.

Expenditures exceed revenues

Deficit Budget.

Revenues exceed expenditures.

Surplus Budget.

Historically, the ________receives the largest share of the national budget.

Department of Education (DepEd)

Philippine national budget for fiscal year 2025 has been set at

₱6.326 trillion,

occurs when government interventions in the economy or society result in inefficient, unintended, or suboptimal outcomes, worsening the issues that they were intended to address.

Government failure

The key factors or reasons for government failure are as follows:

1. Information Asymmetry. 2. Bureaucratic Inefficiency 3. Political Factors. 4. Corruption. 5. Public Choice Theory 6. Externalities

Examples of Government Failure in the Philippines

1. Corruption and Mismanagement. 2. Ineffective Infrastructure Development. 3. Education System Failures. 4. Healthcare System Failures. 5. Environmental Management Failures: 6. Ineffective Poverty Reduction Programs