Fundamental Principles of Public Finance
A serious problem might arise when a fire breaks out because a Mr X, whose house is burning down, might not bother to call the fire brigade because he knows that it will cost him too much money – “Let my house burn down,” he might say, “after all I am covered by insurance and I think that I would like a brand new house anyway.”
The problem might not be with Mr X or his house. What if the fire spreads and burns down a nearby school, crèche and hospital? This is what we mean when we talk about a negative spill-over effect. The picture or analogy here is perhaps of a bucket of water – too much and it spills over. There can also be a positive spill-over effect.
The local town council decides to provide a fire-brigade because of this effect – they arrive at Mr X’s house and put the fire out and by so doing they have, perhaps, also saved a school, a crèche and a hospital. And so in most countries government bodies provide the services below because they believe that it is better to pay for them in order to prevent negative spill-over. Another term often used to describe these spill-over effects is Externalities. External means that which is affected on the outside. And so our example means that if house A burns down, the building next to it might also be destroyed – there is “another” or “external” negative effect. See if you can think of positive spill-over effects or externalities.
Examples of Quasi-Public Services: • Fire protection – a positive spill-over exists with the existence of a fire-brigade; without this protection the community receives negative spillover only.
Example A team of fire fighters battles a fire. Protective suits and helmets shield them from intense heat and poisonous gases, but their jobs are still rigorous and often dangerous. At a fire, a team will perform rescue operations, protect nearby areas, and oversee salvage work, as well as extinguish the blaze.
• Education – this could be supplied by the private sector, as with private schools and colleges, but the less fortunate who cannot pay will go without. There exists the argument that having a literate population is to the benefit of all (positive spillover), the government therefore is prepared to subsidise or pay in full for such a service. Without this there is a negative spillover, as when the rate of unemployment rises because of a lack of education or training. Education is also provided on humanitarian grounds so that every child has an equal opportunity to compete.
• Preventive health services – here a price per unit can be charged, but because of the positive or negative spill-over with or without, the government may subsidise or pay this type of service in full. It is in the interests of the whole country that all its citizens remain healthy; many governments are prepared to spend money preventing people from becoming ill as an unhealthy workforce is an unproductive workforce. This service could be in the form of clinics, free medical care and educational programmes to teach people to care for themselves and their families.
Example This girl receives immunisation. Immunisations protect the body by helping it to create new antibodies. This has a positive spill-over effect in that by protecting this child, she will remain healthy and not pass on any infection to the community around her; the government is then using the programme for a positive spill-over effect, or to avoid a negative spill-over affect (the possibility of her passing on a disease to others).
The sources of revenue for financing health care may be the following: taxation to build the hospital or clinic (capital cost) and a small fee which helps to run the clinic (operational costs). See more in Module 8 about these costs.
15
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76 |
Page 77 |
Page 78 |
Page 79 |
Page 80 |
Page 81 |
Page 82 |
Page 83 |
Page 84 |
Page 85 |
Page 86 |
Page 87 |
Page 88 |
Page 89 |
Page 90 |
Page 91 |
Page 92 |
Page 93 |
Page 94 |
Page 95 |
Page 96 |
Page 97 |
Page 98 |
Page 99 |
Page 100 |
Page 101 |
Page 102 |
Page 103 |
Page 104 |
Page 105 |
Page 106 |
Page 107 |
Page 108 |
Page 109 |
Page 110 |
Page 111 |
Page 112 |
Page 113 |
Page 114 |
Page 115 |
Page 116 |
Page 117 |
Page 118 |
Page 119 |
Page 120 |
Page 121 |
Page 122 |
Page 123 |
Page 124 |
Page 125 |
Page 126 |
Page 127 |
Page 128 |
Page 129 |
Page 130 |
Page 131 |
Page 132 |
Page 133 |
Page 134 |
Page 135 |
Page 136 |
Page 137 |
Page 138 |
Page 139 |
Page 140