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Why Study Public Finance?
1.1   The Four Questions of Public Finance
1.2   Why Study Public Finance? Facts on Government in the United States and Around the World
1.3 Why Study Public Finance Now? Policy Debates over Social Security, Health Care, and Education
1.4 Conclusion
The Four Questions of Public Finance
•Public finance: The study of the role of the government in the economy.
Four questions of public finance:
1.When should the government intervene in the economy?
2.How might the government intervene?
3.What is the effect of those interventions on economic outcomes?
4.Why do governments choose to intervene in the way that they do?
When Should the Government Intervene in the Economy?
•Economics generally presumes that markets deliver efficient outcomes, so why should government do anything?
•Primary motive for government intervention is therefore market failure.
•Market failure: Problem that causes the market economy to deliver an outcome that does not maximize efficiency.
APPLICATION: The Measles Epidemic of 1989−1991
•Measles vaccine introduced in 1963, and measles cases had become relatively rare in the United States by the 1980s. 
•1989−1991: Huge resurgence in measles.
•This outbreak resulted from very low immunization rates among disadvantaged inner-city youths.
•Unimmunized children imposed a negative externality on other children.
•The federal government responded to this health crisis in the early 1990s:
oEncouraged parents to immunize their children.
oPaid for the vaccines for low-income families.
•Impressive results:
•Immunization rates never higher than 70% prior to outbreak.
•Rose to 90% by 1995.
•Government intervention clearly reduced this negative externality.