INTRODUCTION

EC0 2006 PUBLIC SECTOR ECONOMICS

Prof.Dr. Y.Kutepeli

Government: is a necessity; but at the same

time it has undesirable aspects. The mixed

feelings toward government are bound up with
its spending and taxing activities.
Public finance = public economics = public

sector economics
Microeconomic foundations of government:

how government affects allocation of resources

and distribution of income.
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EC0 2006 PUBLIC SECTOR ECONOMICS

Prof.Dr. Y.Kutepeli

Decisions about public policy cannot based only

on economic analysis. Value judgements are also

required.
There is arbitrariness in selecting a government

size.
It is difficult to measure things we care about.
We should not abandon attempts at measurement.
We have to be cautious in interpreting data.
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EC0 2006 PUBLIC SECTOR ECONOMICS

Prof.Dr. Y.Kutepeli

Political philosophers have distinguished two

major approaches towards government:

1. organic view of the government : society is

conceived of as a natural organism.

Each individual is a part of this organism and

the government is at its heart.

Goals are set by the government.
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EC0 2006 PUBLIC SECTOR ECONOMICS

Prof.Dr. Y.Kutepeli

2. mechanistic view of the government:

government is created by individuals to better

achieve their individual goals.
The individual rather than the society is at

center stage.
The government should promote what is good

for the individual and protect it.

EC0 2006 PUBLIC SECTOR ECONOMICS

Prof.Dr. Y.Kutepeli

Smith: government should have responsibility

for creating and maintaining certain public works

and certain public institutions, which it can never
be for the interest of any individual/small number
of individuals.
Liberals: limited government, skeptical about the

ability of government to improve social welfare.

Social democrats: government intervention is

needed for the good of individuals.

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EC0 2006 PUBLIC SECTOR ECONOMICS

Prof.Dr. Y.Kutepeli

Central government : determines nationwide

economic policy on spending and taxation.

Local governments : given central governments

policies, design & implement own decisions.

Government spending:
Purchases of goods and services
Transfer income to people/businesses/governments
Interest payments
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EC0 2006 PUBLIC SECTOR ECONOMICS

Prof.Dr. Y.Kutepeli

TOOLS OF NORMATIVE ANALYSIS:

Lack of experiments
Model building to specify as much as possible

so that the problem is reduced to its essentials.

Omission is the beginning of all good economic

analyses.

A model should be plausible and informative.

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EC0 2006 PUBLIC SECTOR ECONOMICS

Prof.Dr. Y.Kutepeli

Econometrics
Model
Parameters
Statistically significant

Theory: explanation of observed phenomena in

terms of a set of basic rules and assumptions.

Model: mathematical & graphical representation

of a theory.
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EC0 2006 PUBLIC SECTOR ECONOMICS

Prof.Dr. Y.Kutepeli

Causation versus correlation

To say that X causes Y:
1. X must precede Y.
2. X and Y must be correlated (they must move

together).

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EC0 2006 PUBLIC SECTOR ECONOMICS

Prof.Dr. Y.Kutepeli

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EC0 2006 PUBLIC SECTOR ECONOMICS

Prof.Dr. Y.Kutepeli

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EC0 2006 PUBLIC SECTOR ECONOMICS

Prof.Dr. Y.Kutepeli

EU-Defined General Government Debt Stock (% of

GDP)

Source: Undersecretariat of the Treasury

Turkey is one of the best performers among the European

economies in reducing government debt. The general government
debt stock ratio has been meeting the EU Maastricht Criteria, 60%,
since 2004.
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EC0 2006 PUBLIC SECTOR ECONOMICS

Prof.Dr. Y.Kutepeli

General Government Debt Stock (% of GDP)

Source: Undersecretariat of the Treasury and Eurostat

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EC0 2006 PUBLIC SECTOR ECONOMICS

Prof.Dr. Y.Kutepeli

General Government Budget Balance (% of GDP)

Source: European Commission's Directorate-General for Economic and

Financial Affairs (ECFIN)

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EC0 2006 PUBLIC SECTOR ECONOMICS

Prof.Dr. Y.Kutepeli

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EC0 2006 PUBLIC SECTOR ECONOMICS

Prof.Dr. Y.Kutepeli