Navigating Public Sector Budgeting: Externalities, Fiscal Impact, and Global Influences - Report Example

Published: 2024-01-20
Navigating Public Sector Budgeting: Externalities, Fiscal Impact, and Global Influences - Report Example
Type of paper:  Essay
Categories:  Company Economics Government Budgeting
Pages: 4
Wordcount: 882 words
8 min read

Delivering Public Goods and Services

Connected standards as criteria for obtaining grants; States may advise their local authorities on budget utilization (Rubin, 2014). Many state governments say what model to use for budgeting and what details to provide. States may restrict local government borrowing or even require the government to authorize all local borrowing (Rubin, 2014). The caps on taxes and borrowing impose substantial budgetary restrictions. Revenue restricts expenditure for state and local governments, as the statute mandates the balance. If the borrowing levels and the overall debt accrued are limited, the balance obligation by borrowing is perhaps more impossible to control. State laws and constitutions are common to tax restrictions (Rubin, 2014). The legislative super majority's constitutional criteria to enact tax hikes have made it harder for individual states to increase taxes regardless of the actual amount of expenditure (Rubin, 2014).

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Economic globalization leads to industrial workers' exodus to other countries; this long-term negative trend can result in cyclical falls in the economy (Rubin, 2014). Due to the rise in entitlement services to help the impoverished during an economic crisis, expenditure for food stamps (now known as SNAP), Medicaid, and unemployment benefits can increase during an economic downturn. While the budget for these services rises, income may drop as more citizens become unemployed, resulting in low tax revenues (Rubin, 2014). The recession coincided with other non-cyclical trends, including population aging, which raised medical insurance and retirement costs. The loss of suitable employment can be caused by globalization, affecting both the economies of many cities and the federal and state financial prudence.

Evaluate the Consequences of Two Externalities and Their Impact on Public Sector


An externality is an expense or gain arising from a good or service's consumption or production. Externalities can influence a single or a particular person both positively and negatively, or they can impact society in general ("Investopedia", 2019). The externality beneficiary, usually a third party, has no power and will never incur any expense or profit. Negative externalities are generally at the detriment of citizens, but positive externalities typically come with advantages. For instance, a crematorium emits poisonous air gasses like mercury and greenhouse gases; this impacts people who may live in the region and damages their health. Pollution is another widely recognized adverse externality. Companies and businesses might attempt to reduce their costs by implementing production steps that can damage the environment. Although production costs can decrease and rise in revenue, it also has environmental and social costs ("Investopedia", 2019).

Meanwhile, creating more green spaces in a city helps the people who work there. Investment in education is another positive externality. If education is readily affordable and accessible, society as a whole is bound to profit. People can earn higher wages if employers have a professional and educated workforce. Governments can choose to eliminate or minimize negative externalities through fiscal and regulatory means, for example, by taxing and scrutinizing heavy contaminants ("Investopedia", 2019). Besides, subsidies can be paid to citizens generating beneficial externalities. Externalities lead to a breakdown in the market because equilibrium in a product or service price does not represent the actual benefits and costs.

Suggest the Most Practical way to Study the Fiscal Impact of Public Sector


Fiscal impact analysis could be a valuable method to forecast the long-term financial effects of budgeting in the public sector. The impact of new general economic growth initiatives is one of the most popular applications of this mechanism. The economist might use it to consider the effects of leaving firms, such as closing a production plant or modifications of some other significant programs, operations, or even the state of the community (Mucha, 2020). Projects with a capacity to raise increased tax revenue and utility fees often demand public spending to construct new infrastructure and provide expanded services supporting the growth of new ones.

The fiscal impact analysis allows for a comparison between the sum of the increased government expenditures and all the additional taxes for a given period. All the effects that a change would have on the current society and the jurisdiction's financial condition can almost not be fully characterized (Mucha, 2020). Several decisions on major parameters will affect costs and revenue in each stage of the fiscal effect analysis process. Moreover, there are no agreed criteria for budgetary impact analysis, methods guiding governments, or precision determination. Econometric models for estimating effects have been elaborated by specialists in this field; nevertheless, model selection may significantly impact forecasting. Governments typically use fiscal impact assessments to forecast the consequences of demographic change and analyze potential economic advancement strategies. Determine how new projects might trigger subsidies from established revenue sources, and evaluate the effects of alternative latitudes, development trends, and land-use strategies as frameworks for development planning (Mucha, 2020). Due to the need to consider how current public spending affects long-term economic viability, the analysis of fiscal effects is an essential method for long-term money management and a necessary part of every government's lengthy strategic planning.


Investopedia. (2019, October 8). The effect of externalities on equilibrium and market failure.

Mucha, M. J. (2020). Fiscal impact analysis: How to use it and what to look out for. Questica.

Rubin, I. (2014). Past and future budget classics: A research agenda. Public Administration Review, 75(1), 25–35.

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