Comprehensive Exam - Public Finance Section

1. According to President Obama buildings use about 40% of the energy we consume and cause about 40% of our carbon pollution. In the U.S. older homes and buildings on average use twice as much energy as newer homes and buildings. He has asked Congress to provide new temporary incentives for Americans to make energy-efficiency retrofit investments in their homes. According to Obama unemployment in the construction industry hit 21% this year so this policy could help fight unemployment and help the environment. (http://www.whitehouse.gov/blog/issues/Energy-%2526-Environment)

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 incentives for energy-efficiency retrofit investments 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 incentives for alternative energy-efficiency retrofit investments?

e. Briefly explain the difference between social costs, on budget costs, and off budget costs using examples for this policy.

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. Concerned about the budget deficit someone has suggested instead putting a tax on heating oil and natural gas. How might this have similar effects? How might it differ?

i. What factors would influence the equity of the redistribution effects of a tax on heating oil and natural gas?

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

 

2. The city of Chiflado has unusually high incidence of auto accidents resulting in property damage, injuries and deaths. The city is considering several alternatives to deal with this problem including: installing red light cameras at intersections, turning intersections into roundabouts, using speed activated signs to warn drivers who are speeding, increasing police officer presence, running editorials in the newspaper urging more caution, and putting in speed bumps.

Note this question has 10 parts. If you think carefully each part can be concisely explained in a few sentences using concepts and principles developed by public finance economists.

a. Pick one of the alternatives and discuss some of the key data or information you would want to gather to do a benefit cost analysis of that approach.

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 intervention to reduce these problems.

d. How might you weigh the value of reduced injuries and deaths?

e. Briefly explain the difference between social costs, on budget costs, and off budget costs using examples for this policy.

f. What are some alternatives you might consider for funding this project, and why?

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

h. Suppose property taxes are used. What would be the likely incidence of such a tax?

i. Would the socioeconomic characteristics of the people in the area where the project would take place matter?

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