Download 1 Public Sector and it`s Functions The framework

Public Sector and it’s Functions
PhD Anto Bajo,
Faculty of Economics and Business,
University of Zagreb
The framework
●
What is the public sector?
●
Roles of the public sector, and its main functions
●
Distribution of functions
Why we need public sector?
The market mechanism cannot perform all economic
functions and will not ensure full employment
Public sector policy is necessary to direct, adjust and
supplement the workings of the private sector
The size of the public sector is a technical and not an
ideological issue
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Government and functions
• The government of a country consists of the public authorities and
their agencies - entities established through political processes that
exercise legislative, judicial, and executive authority within a
territorial area.
• The principal economic functions of a government are:
• to assume responsibility for the provision of goods and services
to the community on a non market basis, either for collective or
individual consumption
• to redistribute income and wealth by means of transfer payments.
• these activities must be financed primarily by taxation or other
compulsory transfers.
• A government may, of course, also finance a portion of its
activities in a specific period by borrowing or by acquiring
funds from sources other than compulsory transfers, such as
interest revenue, sales of goods and services, or the rent of
assets.
Allocation of Resources
Resources are allocated between government and private use:
•
For government use:
- Roads
- Schooling
- Fire Protection
•
For private use:
- Food
- Clothing
•
Units of private goods and services are forgone by
individuals so that government can provide goods and
services.
Production Possibility Curve
2
The Mixed Economy
Characteristics of a mixed economy:
•
Government supplies many goods and services
•
Government regulates private economic activity
•
Government expenditures equal ¼ to ½ of GDP
•
Government participates in markets as a buyer of goods and
services
Total government expenditure as % of GDP,
2015
Circular Flow
3
Public sector - Analytical
framework
• IMF (2001, 2014), Manual on Government Financial
Statistics, Washington DC.
• United Nation (1993, 2008), System of National
Accounts, Washington DC.
• Eurostat (1995, 2010), European System of Accounts
What is the public sector?
PUBLIC SECTOR
Central government
(Ministries and
agencies)
Extrabudgatary funds
State government
Local government
(municipalities, cities)
Public corporations
Financial public
corporations
Non financial public
corporation
(e.g. Public enterprises)
Monetary public
corporations (including
Central bank)
Non monetary
financial
corporations
Public sector
• It consists of all institutional units primarily engaged in
non market operations.
• the public sector is defined to capture the impact on
fiscal policy of the activities of public corporations. It
includes all units of the general government sector
plus all public corporations.
• In addition, a number of sub sectors of the general
government and public sectors are defined because of
their likely analytic usefulness.
4
General government expenditure in 2013.
UK
Sweden
Finland
Slovakia
Slovenia
Romania
Portugal
Poland
Austria
Netherlands
Malta
Hungary
Luxembourg
Lithuania
Latvia
Cyprus
Italy
Croatia
France
Spain
Greece
Ireland
Estonia
Germany
Denmark
Czech R
Bulgaria
Belgium
central
state
local
social security
0%
20%
40%
60%
80%
100%
Central government
• The political authority of a country’s central government
extends over the entire territory of the country. The central
government can impose taxes on all resident institutional units
and on non resident units engaged in economic activities within
the country.
• The central government typically is responsible for providing
collective services for the benefit of the community as a whole,
such as national defence, relations with other countries,
public order and safety, and the efficient operation of the
social and economic system of the country.
• In addition, it may incur expenses on the provision of services,
such as education or health, primarily for the benefit of
individual households, and it may make transfers to other
institutional units, including other levels of government
Central government
• The central government sub sector is a large and
complex sub sector in most countries.
• It is generally composed of a central group of
departments or ministries that make up a single
institutional unit.
• In many countries, other units operating under the
authority of the central government with a separate
legal identity and enough autonomy to form
additional government units.
5
Local public sector
LEGISLATIVE
SYSTEM
PARLIAMENT
JUDICIAL
SYSTEM
Central Public Sector
(Ministries, state bureaucracy)
COURTS
PROVINCE
THE LOCAL PUBLIC SECTOR
Local authori es
Local
administra on
Deconcentarted
services and oversight
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Parastatals
bodies
Localized Front-Line Service Delivery to
Residents, Civil Society and the Private Sector
A state, province, or region
•
A state, province, or region is the largest
geographical area into which the country as a
whole may be divided for political or
administrative purposes.
•
These areas may be described by other terms,
such as provinces, cantons, republics,
prefectures, or administrative regions.
•
The legislative, judicial, and executive authority
of a state government extends over the entire
area of an individual state, which usually
includes numerous localities, but does not extend
over other states.
•
In some countries, individual states and state
governments may not exist. In other countries,
especially those with federal constitutions,
considerable powers and responsibilities may
be assigned to state governments.
State government
•
A state government usually has the fiscal
authority to levy taxes on institutional units
that are resident in or engage in economic
activities in its area of competence.
•
To be recognized as a government unit the
entity must be able to own assets, raise
revenue, and incur liabilities on its own
account, and it must also be entitled to
spend or allocate at least some of the taxes or
other income that it receives according to its
own policies.
•
The entity may, however, receive transfers
from the central government that are tied to
certain specified purposes.
•
A state government should also be able to
appoint its own officers independently of
external administrative control.
6
Local government
•
The legislative, judicial, and executive
authority of local government units is
restricted to the smallest geographic areas
distinguished for administrative and
political purposes.
•
The scope of a local government’s
authority is generally much less than that
of the central or state governments, and
such governments may or may not be
entitled to levy taxes on institutional units
or economic activities taking place in their
areas.
•
They are often heavily dependent on
grants
from
higher
levels
of
government, and they may also act as
agents of central or state governments
to some extent.
Local government functions
• Functions assigned to local government are usually:
fire protection
primary and secondary
education
primary health care
•
local road maintenance
and public
infrastructure
Minimum national standards should be established to guarantee
minimum level of provision for certain service at the local level.
Extrabudgetary funds
• A social security fund is a particular form of
government unit that is devoted to the operation
of one or more social security schemes.
• It must be separately organized from the other
activities of government units, hold its assets and
liabilities separately, and engage in financial
transactions on its own account.
PUBLIC SECTOR
Central government
(Ministries and
agencies)
Public corporations
Extrabudgatary funds
Financial public
corporations
State government
Monetary public
corporations (including
Central bank)
Local government
(municipalities, cities)
Non monetary
financial
Non financial public
corporation
(e.g. Public enterprises)
corporations
• Other forms of extrabudgatary funds: roads
maintenance and construction, environmental
protection etc.
7
General government in Croatia
1995
2000
2005
2015
State budget
- Ministries
Extrabudgetary funds
Local government
17
20
13
20
6
5
7
7
520
567
570
576
Financial public corporations
• financial corporations sector, consists of entities
engaged in providing financial services for the market;
• The financial corporations sector consists of all
corporations, quasi-corporations, and market NPIs
principally engaged in financial intermediation or in
auxiliary financial activities closely related to financial
intermediation.
• Public financial institutions are often founded in
order to provide certain quasi fiscal services. Thus,
usually, government development banks will make
loans to certain selected sectors or firms on noncommercial basis (for example, interest rates lower than
on market).
Monetary public corporations
• Monetary public corporations other than the central
bank—all resident depository corporations other than the
central bank that are controlled by general government
units.
accounting:
Web address:
1. Croatian National bank
Bank
http://www.hnb.hr
2. Croatia bank
Bank
http://www.croatiabanka.hr
3. Croatian postal bank
Bank
http://www.hpb.hr
4. Croatian bank for reconstruction
and development
Bank
http://www.hbor.hr
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Monetary non financial public corporations
• All resident financial corporations controlled by general
government units except the central bank and other public
depository corporations.
• Depository corporations are financial corporations, quasicorporations, or market NPIs whose principal activity is financial
intermediation and who have liabilities in the form of deposits or
financial instruments that are close substitutes for deposits.
accounting:
Web address
1. State Agency for deposit
Insurance and bank
rehabilitation
2. Capital market regulatory and
supervisory consultative
agency
Nonprofit
http://www.dab.hr
Nonprofit
http://www.hanfa.hr
3. Money market Zagreb d.d.
Corporate
4. Zagreb stock exchange d.d.
Corporate
http://www.trzistenovca.h
r
http://www.zse.hr
Non financial public corporations
• Non financial corporations sector, consists of entities
created for the purpose of producing goods and
nonfinancial services for the market.
• In many countries non-financial public corporations provide
services on a non-commercial basis, usually in the form of
prices lower than those needed to cover costs (for
example, charging for electricity below market price for rural
households).
• These non commercial activities can be financed via
cross-subsidizing among various consumer groups (some
consumers pay a higher and some a lower price for the same
service) or perhaps the losses of the non-financial public
corporations will be covered from the budget.
• Such activities ruin transparency in the relationship between
non-financial public corporations and general government
and should be taken into account when consideration of the
fiscal position of a country.
The need for a public sector?
• Market mechanisms do not carry out efficient
allocation of resources
• Inefficiency of competition
• Protection and legal coercion of government
• Problems of externalities
• Income distribution
• Stabilisation
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Main public sector functions
• Allocation – the best combination of public and
private goods
• Distribution of income and wealth for the
provision of socially acceptable distribution
• Stabilisation – budgetary functions
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