Comprehensive Exam - Public Finance Section

1. The San Joaquin Valley Air Pollution Control District is considering rules that would require builders to use air-quality-friendly design features such as sidewalks, insulation, turnouts for bus stops, shade trees and walking trails. If they do not they must pay fees for the expected additional pollution from traffic. The money from fees would be used for clean-burning public buses, to replace dirty diesel engines and to pave road shoulders. For residential construction it is estimated this would add $780 to $1,770 per house.

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

a. In designing a benefit cost analysis of this proposal, what are some of the key data or information you would want to gather?

b. Briefly explain an externality related economic rationale for government the fees.

c. Briefly explain the conceptual differences between the social costs or benefits and the on budget costs or benefits to government agencies that might be involved in these changes and give an example of each.

d. Some citizens are concerned about the financial burden and claim that the fees are regressive. Others say they are progressive. Briefly explain who is right.

e. Briefly list some alternatives for raising money for the proposed purchases and some of the advantages and disadvantages of the options.

f. Are any of the proposed purchases public goods?

g. What influences on the magnitude of excess burden might come into play with this fee?

h. Would how the tax revenues are used influence perception of the taxs equity from public finance perspective?

i. Some people may be hurt by the proposal and some people may benefit. How does the Hicks-Kaldor criterion suggest you choose whether to undertake this project? Why might some disagree?

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

2. Suppose a community group proposes the city should build a history museum. They point out that this would provide educational benefits to local residents, be a tourist site that would stimulate demand for other businesses in the area, and therefore also generate additional sales tax revenues. Since surveys of area residents indicate that education is a top priority they argue this project should clearly be undertaken.

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. Do you see any problems with the community groups analysis so far?

b. In designing a benefit cost analysis of this project, what are some of the key data or information you would want to gather?

c. Briefly explain a public finance rationale for government intervention.

d. 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?

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 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 neighborhood that receives the museum matter in designing your proposal and evaluating the benefits?

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