Ch. 10 - Expenditure Policy

• A need for a program is identified when a market failure can be pinpointed.
• Four major categories of government intervention are defined: public production, private production with taxes or subsidies, private production with regulation, and public-private partnerships.
• One of these categories is best suited to address the program aim on either efficiency or distributional grounds.
• Design features such as eligibility requirements must be set to maximize receipt among deserving individuals and minimize receipt among non-deserving individuals.
• The public program may crowd out parallel private sector efforts to address the identified problem.
• Both the short-term and long-term effects of government intervention on private sector activity must be considered.
• Efficiency losses are associated only with substitution effects.
• Any level of welfare achieved through a price subsidy could have been achieved less expensively through an income grant.
• The distinction between intended and actual incidence, where the benefits can be shifted from the intended recipients to another group entirely, is drawn.
• Programs’ distributional consequences on distinct groups are considered: poor versus rich, young versus old, cities versus suburbs, or urban versus rural.
• The details of a program can offer different tradeoffs between efficiency and equity.
• Any noneconomic goals of a program must be articulated so that the program can be evaluated in light of such goals as well as its economic consequences.
• Political realities may affect the range of feasible programs.