Challenges in State and Local Public Finance Essays

Challenges in State and Local Public Finance Essays Challenges in State and Local Public Finance Essay Challenges in State and Local Public Finance Essay The government is one of the many institutions that greatly affect our everyday life. Most of the services that we get to avail of are financed by the state and local government. These services include road maintenance, water supply, environmental protection, etc (Bish). Public finance or government finance is a branch of economics that deals with the allocation of budget in revenues and expenditures of a public sector. This public sector we are referring to is, oftentimes, the government.There are a lot of challenges facing state and local public finance. One of them are local taxes. Inequalities in local sales taxes are worsening in local government finance. Also, competition may emerge involving sales tax revenues in certain municipalities of a country. Another problem with taxes is that some municipalities rely on them for economic expansion which is not its real purpose. The second challenge facing public finance is the allocation function of the governme nt. Its allocation function includes the existence of public goods. Public goods can be a problem in public finance since it is impossible or inefficient to exclude individuals in availing a certain good. The problem with public goods is that its payment is voluntary.Because of this, some goods will not be supplied by the market or if supplied, quantities will be insufficient. One of the solutions with this problem would be ballot voting. Another problem that one might encounter in public finance is the government’s stabilization function. This function of the government requires them to think of effective policies that are needed to attain full employment and price stability which is not easy. Implementing policies will never be effective if it is not thought based on the current situation of the economy of a certain area. Another would-be problem is externalities. This kind of market failure arises when market transactions between economic agents generate external effects. Goods with negative externalities will be over provided (in the sense of efficiency) and goods with positive externalities will be under provided. Regulations, Taxes, and rewards are the possible solutions to this problem. Lastly, the distribution function of the government can also be a problem in public finance. Since everybody wants fair distribution, government expenditures must be distributed equally in different classes or groups. The problem is that the concept of â€Å"fairness† is subjective. What is fair to one might not be fair to another.Reference:Bish, Robert L. Local Government Finance Issues in the Unoted States.   2002.   University of Victoria. December 13 2006. http://web.uvic.ca/padm/cpss/lgi/pdfs/bbish/lgf_us.pdf.