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Public Budgeting Assignment 3 Professor Licari

Read the following quote and answer the questions that follow.

"The fundamental problem of allocating resources in the public sector, compared to the private sector, is that the beneficiary and the person paying for the service are often not the same (i.e. resource allocation has a redistributive element). This inevitably leads to a demand for more services from the beneficiary and a request for less taxes from the financier, and therefore, leads to dramatic conflicts and crises in public fiscal policy. Fiscal policymakers should, therefore, strive to establish direct links between revenues and expenditures whenever possible (such as user charges and fees) and indirect linkages otherwise (such as earmarking revenues)."

Discuss this quote with reference to the criteria we use to evaluate tax mechanisms, and compare the benefit principle with the ability to pay principle. How do the to principles work? Finally, discuss how practical this approach is to state and local government finance.

This essay should be 5-6 pages long, and is due in class on April 19.