DISCUSSION What are Governments for?

THE ROLE OF GOVERNMENT

UNIT 9.

Some people argue that governments have too much power, that the interfere with "market forces", and that too much regulation is bad for busi­ness.

1. Do you believe that there is too much or too little government in your country, that there are unnecessary laws, or not enough laws?

2. Do you think that any of the following tasks should not be undertaken or regulated by the government, but should be left to the private sector and the market system?

• education

• health care

• housing

• working conditions (working hours, child labour, minimum wages, and so on)

• social security (unemployment and sickness benefits, old age pen­sions)

• defence (the armed services - army, navy, air force)

• the police, the justice system, prisons and so on

• public transport (trains, buses, and so on)

• traffic regulations (the driving test, speed limits, seat belts, the alco­hol limit, parking restrictions, the size and weight of lorries and trucks, the safety of cars, and so on)

• health, safety, and cleanliness regulations (concerning factories, shops, restaurants, food, medicines, the disposal of chemical and nuclear waste, and so on)

• the sale of alcohol, drugs, guns, and so on

• the press, broadcasting, the arts, entertainment, and the freedom of expression (concerning sex, violence, blasphemy, politics, and so on).

Now classify the tasks you consider to be governmental responsibilities in order of importance, adding any further areas that are not listed here.

PART I. ECONOMICS

fading THE ROLE OF GOVERNMENT

Having mentioned the effect of government tax policy on the income distribution, it's necessary to examine in greater detail the role of the gov­ernment in society. In every society governments provide such services as national defence, police, public education, firefighting services, and the administration of justice. In addition, governments through budget make transfer payments to some members of society.

Transfer payments are payments made to individuals without requiring the provision of any service in return. Examples are social security, retire­ment pensions, unemployment benefits, and, in some countries, food stamps. Government expenditure, whether on the provision of goods and services (defence, police) or on transfer payments, is chiefly financed by imposing taxes, although some (small) residual component may be financed by government borrowing. The table below compares the role of the government in four countries.

Country	Purchase of goods and services %	Transfer payments %	Debt interest %	Total%
UK	23,0	17,2	5,1	45,3
Japan	14,9	12,7	4,6	32,2
USA	20,1	12,2	4,8	37,1
Italy	27,0	23,0	9,2	59,4

In each case, we look at four measures of government spending as a percentage of national income: spending on the direct provision of goods and services for the public, transfer payments, interest on the national debt, and total spending.

Italy is a 'big-government' country. Its government spending is large and it needs to raise correspondingly large tax revenues. In contrast, Japan has a much smaller government sector and needs to raise correspondingly less tax revenue. These differences in the scale of government activity relative to national income reflect differences in the way different countries allo­cate their resources among competing uses.

Governments spend part of their revenue on particular goods and ser­vices such as tanks, schools and public safety. They directly affect what is produced. Japan's low share of government spending on goods and services in the table reflects the very low level of Japanese spending on defence.

Governments affect for whom output is produced through their tax and transfer payments. By taxing the rich and making transfers to the poor, the government ensures that the poor are allocated more of what is produced than would otherwise be the case; and the rich get correspondingly less.

The government also affects how goods are produced, for example through the regulations it imposes. Managers of factories and mines must obey safety requirements even where these are costly to implement, firms are prevented from freely polluting the atmosphere and rivers, offices and factories are banned in attractive residential parts of the city.

The scale of government activities in the modem economy is highly con­troversial. In the UK the government takes nearly 40 per cent of national income in taxes. Some governments take a larger share, others a smaller

MT 9. THE ROLE OF GOVERNMENT 49

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share. Different shares will certainly affect the questions what, how and for whom, but some people believe that a large government sector makes the economy inefficient, reducing the number of goods that can be pro­duced and eventually allocated to consumers.

It's commonly asserted that high tax rates reduce the incentive to work. If half of all we earn goes to the government, we might prefer to work fewer hours a week and spend more time in the garden or watching TV That is one possibility, but there is another one: if workers have in mind a target after-tax income, e.g. to have at least sufficient to afford a foreign holiday every year, they will have to work more hours to meet this target when taxes are higher.

Whether on balance high taxes make people work more or less remains an open question. Welfare payments and unemployment benefit are more likely to reduce incentives to work since they actually contribute to target income. If large-scale government activity leads to important disincentive effects, gov­ernment activity will affect not only what, how, and for whom goods are pro­duced, but also how much is produced by the economy as a whole.

This discussion of the role of the government is central to the process by which society allocates its scarce resources. It also raises a question. Is it inevitable that the government plays a prominent part in the process by which society decides how to allocate resources between competing demands? This question lies at the heart of economics.

VOCABULARY government tax policy - податкова

NOTES політика держави

administration of justice - здійснення

правосуддя

transfer payments - трансфертні платежі

social security - соціальне забезпечення

retirement pensions - пенсії за віком

unemployment benefit (syn. dole) -

допомога з безробіття

food stamps - талони на продукти

харчування

to impose taxes - оподатковувати

residual component - залишкова частина

the scale of government activity -

масштаб державної діяльності

to impose regulations - видавати

адміністративні розпорядження,

постанови

to obey safety requirements -

додержуватись вимог безпеки

costly - дорогий

to ban (syn. to prohibit) - забороняти

residential parts of the city - житлові

частини міста

to be controversial - бути неоднозначним

to make the economy inefficient -

знижувати ефективність економіки

eventually (syn.,at last) - нарешті

it's commonly asserted - прийнято

вважати

incentive - стимул

a target after-tax income - цільовий,

базовий, чистий дохід

to meet a target - досягти мети

on balance - із врахуванням усього

вищезгаданого

welfare payments - державна допомога

(з безробіття, страхування)

EXERCISES

Answer the following questions:

1. What are transfer payments? Give some examples.

2. Using the table from the text compare the UK and the USA on the same basis.

3. In what way can governments affect what and for whom is produced?

4. Why does a large government sector make the economy inefficient?

5. What are the two possibilities of responding to high tax rates on the part of workers?

6. What is the possible outcome of large-scale government activity?

7. Summarise in your own words the arguments for and against high taxes.

PART I. ECONOMICS

II. Suggest Ukrainian equivalents.

to obey safety requirements

government takes the larger/smaller share

to make the economy inefficient

measures of government spending

interest on the national debt

total spending

to allocate resources between competing demands

III. Find the terms in the text which describe the following:

• money paid to people without asking for a service in return

• money paid to people when they stop working

• money paid to people who have no work

• money owed by the government of a country

• money received by governments from taxation

• money a worker keeps after paying taxes.

IV Write synonyms instead italicised words. it's generally declared

managers of factories must obey the requirements governments directly influence what is produced to bring up a question to collect taxes government's expenditure is financed by imposing taxes.

V Using the information in the text, say whether the following statements are correct or incorrect.

1. Governments do not make free transfer payments.

2. Food stamps are an example of a transfer payment.

3. Most government income comes from borrowing.

4. Japan raises more taxes than Italy.

5. Japan spends very little on defence.

6. The poor get more of what is produced through taxation and transfer payments.

7. Governments do not affect how goods are produced.

8. Nobody questions the scale of government economic activity

9. Many people believe that high taxes result in people not wanting to work so hard.

10. The production possibility frontier is a tool to examine the role of government in the economy.

VI. Translate into English.

1. Трансфертні платежі, до яких відносяться соціальне забезпечення, виплата пенсій, допомога по безробіттю і т.д., безпосередньо впливають на податкову політику уряду.

2. Державні витрати в основному фінансуються за рахунок оподаткування.

3. Чим більшою є сума витрат уряду, тим більше податкових надходжень він потребує.

4. Ступінь участі держави в справах економіки може бути більшою або меншою.

5. Таким чином держава відіграє важливу роль в розподілі обмежаних ресурсів суспільства.

VII. Express your attitude towards the following proverbs and sayings.

• Money is a good servant but a bad master.

• Money is the guarantee of security

• Money often unmakes the men who make it.

• Money spent on the brain is never spent in vain.

VIII. Writing Practice. Make a short summary about the role of government in the national

economy from the above text. Use the opening phrases from Appendix 1.

UNIT 9. THE ROLE OF GOVERNMENT

UNIT 10.

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