Comprehensive Exam - Public Finance Section

1. An organization has put forth a green roof demonstration proposal in New York City. According to the proponents placing waterproof material on roofs and then using a covering of about four inches of soil and various succulent plants can add beauty to cities, reduce extreme heat situations, reduce pollution, reduce or slow runoff during storms making flooding and sewerage backups less likely, reduce the likelihood of fires, extend the life of the roofs, reduce heating and cooling costs, and facilitate community building through common spaces.

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 in deciding whether to undertake the project?

b. Briefly explain an externality related economic rationale for government intervention.

c. Briefly explain the conceptual differences between the social benefits and the on budget benefits to government agencies that might be involved.

d. Some taxpayers are not opposed to green roofs, but point out that there are hundreds of green roofs in London and many were privately built so they oppose any taxpayer funds for such proposals. Why might private markets under provide green roofs as common space for communities?

e. The state is very concerned about a substantial budget shortfall. Someone have suggested putting a tax on electric utilities to fund this proposal. Briefly explain an efficiency related rationale for such a tax.

f. What would tend to determine the economic incidence of the tax?

g. Would a tax on electric utilities be progressive, regressive or proportional?

h. What are some alternatives you might consider for funding such a proposal, and why?

i. Some people may be hurt by the taxes and some people may benefit from the project. How does the Hicks-Kaldor criterion suggest you choose whether to undertake this project? Why might some disagree? Would you care where in New York the green roofs would be?

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

2. Part of a bill before Congress includes $2 million to study a new highway through Del Puerto Canyon that would link I-5 to 130 near San Jose. Proponents have emphasized the stimulatory effect of the construction for areas with high unemployment such as Stanislaus and San Joaquin as well as the reduced congestion through the Altamont Pass and thus improved air quality. Opponents have mentioned concerns about the environmental impact on the canyon area and the costs.

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

a. In designing a benefit cost analysis of a new highway through Del Puerto Canyon what are some of the key data or information you would want to gather? (I.e. what kinds of things should the $2 million study figure out for you?)

b. 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.

c. Suppose some landowners on the proposed route oppose the project because it may require use of some of their land. How might you address their claims of inequity?

d. Would the condition of the overall economy effect your interpretation of the stimulatory effects? Would the nature of the jobs matter?

e. What are some alternatives you would consider for funding such a project, and why?

f. Are there any advantages or disadvantages from an efficiency perspective to a road user fee?

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

h. Some argue these taxes (user fees and gasoline taxes) particularly hurt the poor. Why might this be true? Why might it not be true?

i. How might you reduce the impact of these taxes on the poor? Are there any likely drawbacks to your plan?

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