Westminster International University in Tashkent

Westminster International University in Tashkent

Question 1

a) Taxes are the main factor to fulfill a government’s budgets. Residents, companies and business owners have a contribution to government budget by spending a small portion of their income in tax form. Therefore, one of the government’s responsibility is to provide a number of opportunities and services to individuals such as, first of all, national defense, health care services, education, pension funds for retired individuals, employment facilities, mail services, construction services such as bridges and roads and etc. However, we can provide a brief discussion for the three main government’s obligation for its residents, namely national defense, health care and education.

National defense (protection from inner and outer threat)

National defense is the main responsibility of a government in front of its residents among all other obligations. The reason for this is that people should be in peace to live, work, study and etc., otherwise, there would be a foreign thread without governmental protection and also the level of crime and theft increases without government’s protection which leads to a rise in poverty and in fatality. Therefore, opportunity cost of a small portion of income is to have a peaceful life without any damage and thread. Meanwhile, a majority of people around the world (mostly rich people) attempt to have residency of another country other than their national country. This allows them to have more opportunities to have political protection (for political authorities) in case they are in trouble.

Additionally, governments are responsible to protect environment from deforestation and different hazardous steams and air pollution. To do this, there needs to control the operation of various plants in the country. Also, environmental protection gives residents a satisfied life as it plays a major role in everyone’s life. In my opinion, if there is no available national security and environmental protection, people would be giving up more their income to have a defense and life satisfaction from clear environment. We can see different countries where wars and crime occur daily. Not going too far, a border country of Uzbekistan, Afghanistan has been experiencing a huge damage for the country and local people, who are facing every day to death, since the country is not taking serious responsibilities and not controlling activities over the country. Therefore, from my own perspective, the people of Afghanistan would be willing to give up more their valued things to have a proper life satisfaction.

From my own perspective, I would be willing to give up two times more than what I am paying in the form of tax to the government if there is no available national and environmental protection. I can give a statistical background that there is a huge contribution to protect the environment by lots of countries such as Germany and France dedicate €68.9 and €43.4 respectively to environmental protection.

Health care facilities

The health care system is another main goal of governmental activities. Therefore, each country contributes a huge amount of its expenditure to ensure the healthiness of residents. Also, it is responsible for controlling the case when a serious infectious diseases threat over the country. For example, a majority of countries worldwide including Uzbekistan have been setting quarantine periods which do not allow people to go outside during COVID-19 since the beginning of 2020 in order to protect people to get infected of COVID-19. Also, they are still providing vaccinations and free hospitals for those who are infected of the disease.

This responsibility of a government is very important its population so that the people would be giving up more money for taxes to have a better health care facility. According to the statistics, The United States spends 10 637 USD per capita for health care (www.healthsystemtrecker.org).

Education

Although government is not responsible purely to provide educational services, there is no any country which does not pay attention to availability and quality of education in the country. The main reason for this is that it significantly affects to the development of a country. Therefore, now, a majority of countries are taking responsibilities to build more schools and universities and giving more opportunities to residents to be educated. The return for this service is again in the form of taxes. A government provides school and hire teachers to educate pupils as well as it provides education facilities to everyone. Mainly, our country, The Republic of Uzbekistan is focusing more on the education of its residents by presidential schools, public and private schools, universities, research centers and etc.

According to the statistics from macroeconomictrends.net (2021), The Republic of Uzbekistan has been spending around 23% of its GDP for education since 2013 as it is indicated in the following graph 1:

Graph 1. Educational spending in Uzbekistan.

The graph 1 indicates that Uzbekistan is spending 23% of GDP for education and it means that the country focuses on education in a significant view.

b) Governments spend major part of the budget for the public spending in the form of different services such as health care, construction like roads and bridges, fire protection and etc. All these services are for local people. Mainly, local residents are not limited each other to these services, that is, one person’s satisfaction from these services does not reduce the satisfaction of another person. In other words, governmental goods and services are not haggled by the residents. Furthermore, governments provide pension funds for retired people, fund for disabilities, fund for poor residents and etc.

Private goods can be defined as the goods which are sold in the market by individuals. For example, food and clothing are served and sold in the marker by private owners. These goods and services differ from public goods as private goods are limited and bargained by other individuals while public goods are used by every individual in the country. The public goods are scarce, therefore, an increase in a certain amount of goods and services results in a decrease in the amount of another products. In other words, if governments want to protect air pollution, it uses tax policy as the government increases the tax on oil production which leads to an increase in the oil price.

Graph 2. A change in government goods and services.

According to the graph 2, tax increase for oil goes up, demand for oil decreases, thereby increasing G1 to G2. Thus, goods supplied by government (environment) would be increased in quality. Therefore, households must be willing to sacrifice oil consumption to clean environment.

Question 2

MEC is equal to $15 kg/annually - Marginal external cost

PMC equals to $500 for each ton - Private Marginal Cost

Meanwhile, 2.5 kg CO₂ generated by 1 ton, therefore, MEC is equal to $37 each ton

Marginal Social cost is equal to the sum of Marginal External Cost and Private Marginal Cost

Hence, MSC=$537.5 per ton

Graph 3. A change in price by tax

a) the price will be pushed from $500 by connective tax, thereby shifting equilibrium to B. Steel companies are limited to make less than 10 000 units

Tax is imposed as $150 for each ton

NP=$537.5 (New Price)

NQ (New quantity - Q1) is dependent to demand curve elasticity

Thus, shaded area (3) is the amount of tax revenue which is equal to $37.5

b) The graph 3 indicates that the Consumer Surplus is decreased to 5 while there is no change in producer’s surplus. Meanwhile, the shaded area 3 is tax gain by government, whereas external agent’s gain is 1+2 in the graph.

Hence, net gain would be (1+2) + 3 – (3+2) = 1

We can conclude that consumers are losing while there is no any effect for producers. Overall, society is gaining.

Question 3

Developing countries have more middle- and low-income class households than high-income households. It is clear that low income families can not purchase luxuries due to that they earn less. They have to live in rent houses or build inexpensive shelters. From the past experiences, we witness that a majority of countries did not care low middle families how they survive and earn for personal lives. However, now, countries even allocate some proportion of budget for poor families monthly. For example, during quarantine time, the Republic of Uzbekistan allocated 1 000 000 UZS for low middle families to cover their expenditures for living as well as sometimes we could see that there were distributed household expenditures such as carrot, eggs, oil and etc. for their living. Initially, there needs to mention that the public is able to affect to the infrastructure improvements and control land markets. Secondly, low income households might be granted to build legal houses according to rules and regulations established. Also, government’s program supports them with increasing income level and reducing tax incidence. It can save for their housing.

There can be brought a number of examples for that housing encountered a default. For example, a majority of people were just working to fulfill their food and shelter during the Great Depression, but this complexity of St. Louis’ Pruitt-Igoe was demolished by 1990s. In this view, the main problem was the bureaucracy of government. This consequence was also occurred in Chicago in 1995. At this time, Chicago Authority could not explain neither missing $350 mln. of federal funds nor maintain buildings.

These can be also applied in Uzbekistan from the past experience practices. Mainly, a contribution in the amount of 2.4 trillion UZS ($228 mln) should miss one important aspect in which there must be covered of budged gap by sacrificing another expenditure or this can be done by imposing a new tax on products and services imported to the county. Overall effect of raising tax or imposing a new one will decline the aggregate demand for the product

It is suggested the government to spend the fund for the construction of health care facilities, infrastructure improvement, land market regulation and maintaining social security. Also, broad market liberalization is the best approach to allow private companies so that they can construct enough housing to satisfy local demand.

Reference

1. 
   David N. Hyman, 2011. Public Finance: A Contemporary Application of Theory to Policy, Tenth Edition [online] Place of publication: Joe Sabatino. [Accessed 8 June. 2021].Available at: https://www.uv.mx/personal/clelanda/files/2014/09/Hyman-David-2011-Public-Finance.pdf
   
2. 
   Joseph E. Stigltz, 1999. Economics of the Public sector, Third edition [online] Place of publication: W.W. Norton & Company, Inc. [Accessed 21 June. 2021] Available at: http://www.library.fa.ru/files/Stiglitz-economics.pdf.
   
3. 
   Nisha Kurani and Cynthia Cox 2020, What drives health spending in the U.S. compared to other countries, viewed 22 June 2021, https://www.healthsystemtracker.org/brief/what-drives-health-spending-in-the-u-s-compared-to-other-countries/
   
4.