Comprehensive Exam - Public Finance Section

Choose one of the following 2 scenarios and answer all of the parts a-j for that scenario.

 

1. Motor vehicle crashes occurring across a median are rare, but are related to about 30% of interstate highway fatalities. One proposed solution is high tension four-strand cable median barriers. (http://www.fhwa.dot.gov/resourcecenter/teams/safety/safe_mrt_cable.cfm)

 

Note this question has 10 parts intended to guide you in analyzing some aspects of this issue. If you think carefully each part can usually be concisely explained in a few sentences using concepts and principles developed by public finance economists.

 

a. In designing a benefit cost analysis of whether to install these cable median barriers what are some of the key data or information you would want to gather and why? Feel free to use a list with some notes on reasoning for this part.

b. Once you have the information you would use in a benefit cost analysis how would you handle benefits and costs that occur in different periods of time?

 

c. How might you weigh the value of lives potentially saved?

 

d. Briefly explain a public finance rationale for government provision of cable median barriers along highways.

 

e. Does it matter that some benefits or costs may be on-budget or off-budget items? Be sure to give an example of each to illustrate your explanation.

 

f. What are some alternatives you might consider for funding cable median barriers and why?

 

g. Suppose a general sales tax is used. What would be the likely incidence of such a tax?

 

h. Suppose a vehicle license fee is used. What would be the likely incidence of such a tax? Would it be fair?

 

i. There is another proposal to use resources for a media campaign to reduce unsafe driving habits such as drunken driving, texting and phone use while driving, and not wearing safety belts. If you only have the resources to do one of the projects, which project should be preferred and why?

 

j. Does it make more sense for cable median barrier decisions to be handled at the federal, state, or local level? Why?

OR2. President Obama has proposed an Energy Security Trust to invest $2 billion in research over the next 10 years on creating cheaper and better transportation technology. This may include research on vehicles that run on electricity, biofuels, or natural gas and real-world experiments in some cities and towns. The money would come from federal oil and gas development on federal lands and off-shore. He argues this will create more American energy sources, less pollution, more jobs, lower energy costs, and new technology. (http://www.whitehouse.gov/blog/2013/03/15/what-you-need-know-about-energy-security-trust)

 

Note this question has 10 parts intended to guide you in analyzing the proposed policy. If you think carefully each part can be concisely explained in a few sentences.

 

a. In designing a benefit cost analysis of the proposed Energy Security Trust what are some of the key data or information you would want to gather?

b. Once you have the information you would use in a benefit cost analysis how would you handle benefits and costs that occur in different periods of time?

c. Briefly explain an externality related economic rationale for this policy.

d. How might you prioritize research projects?

e. Does it matter that some benefits or costs may be on-budget or off-budget items? Be sure to give an example of each to illustrate your explanation.

 

f. What would tend to determine the economic incidence of the benefits of this policy?

g. What factors would influence whether there are multiplier effects from a policy such as this?

h. Kevin Massy has suggested instead of using funds from federal oil and gas development on federal lands and off-shore, that we create a modest but meaningful carbon-based tax on fossil-fuel production, with a clear schedule for incremental increase (Brookings Institute, http://www.brookings.edu/blogs/up-front/posts/2013/02/28-obama-energy-environment-massy). How might these revenue sources have similar effects? How might they differ?

i. What factors would influence the equity and efficiency of fuel taxes?

j. Does it make more sense for this project to be handled at the federal, state, or local level? Why?