Question

Consider the following government-provided goods. Which of these goods necessarily require funding via general taxation (as opposed to direct user fees)? [LO 19.5] a. Street lights. b. A park. c. A fireworks display. d. Public radio. e. A library.

Short answer

Street lights, parks, fireworks displays, and public radio typically require funding via general taxation.

Step-by-step solution

Understanding General Taxation vs. Direct User Fees

General taxation is a method where the government collects money from taxpayers to fund public services, which are often non-excludable and non-rivalrous. Conversely, direct user fees are charges for specific services that the users directly pay for. We need to determine which services are funded by general taxation because they benefit society broadly, rather than just individual users.

Analyzing Street Lights

Street lights are a form of public good because they are non-excludable (everyone can use them) and non-rivalrous (one person’s use does not reduce availability to others). Thus, they typically require funding through general taxation rather than direct user fees.

Analyzing a Park

Parks can also be considered public goods; while access may be restricted in some cases, they are generally non-excludable and non-rivalrous. They are usually funded via general taxation because they provide social and environmental benefits to the community at large.

Analyzing a Fireworks Display

Fireworks displays are another example of public goods as they are non-excludable and non-rivalrous—the view is available to all nearby without reducing others' enjoyment. Such displays are typically funded by general taxation for community enjoyment.

Analyzing Public Radio

Public radio is non-excludable and non-rivalrous, making it a public good. Although it can be supported by donations or memberships, it is often funded by general taxation to ensure broad access to information and culture.

Analyzing a Library

Libraries provide services that can be individually used, but they serve as a community resource. Libraries are often mixed in funding—general taxation is common since they provide wide public knowledge access, though some charge minimal user fees.

Key concepts

General Taxation

General taxation is a system where the government collects taxes from the public to fund various services and goods that benefit the entire society. This method is primarily used for services characterized by their substantial value to everybody rather than to specific individuals. These services are labeled as public goods. Public goods funded by general taxation typically include items that cannot be effectively sold to individuals one by one, such as national defense, street cleaning, and public awareness campaigns.

Some examples of services that generally require funding via general taxation include:

• Street Lights: Everyone can use them, and one person's use does not affect another's.
• Parks: Provide recreational space for the entire community without restricting access.
• Fireworks Displays: All enjoy the show without reducing anyone else's experience.
• Public Radio: Offers information and entertainment broadly accessible to everyone.

These goods are typically not suitable for user fees due to their non-excludable and non-rivalrous nature.

Direct User Fees

Direct user fees are specific charges levied on individuals who utilize a particular service. This funding approach is practical and sustainable for services where individual use can be clearly identified and measured. Generally, user fees are applied to services that can be easily excluded from those who do not pay, such as toll roads or entrance fees to exclusive facilities.

Direct user fees make sense when:

• The service can be limited to paying customers, ensuring that only those who pay obtain access.
• Charging directly does not impede broader access or provide a disincentive to beneficial services.

However, for services that are non-excludable and non-rivalrous, like public parks or libraries, using user fees can be impractical. In such cases, even if minimal fees are charged, primary funding often comes from general taxation.

Non-excludable

A non-excludable good is one where it is impossible, or very costly, to prevent individuals who have not paid for the good from enjoying its benefits. This characteristic is a key reason why certain services are funded through general taxation. Such goods are accessible to everyone, and no one can be effectively excluded from using them after they are provided.

Consider these examples:

• Street Lights: They illuminate public areas, accessible to all at no additional cost.
• Public Radio: Broadcasts are available to anyone within the listening range without specific access restrictions.

In these cases, non-excludability means all enjoy the benefits without direct payment, making them ideal candidates for funding via general taxation.

Non-rivalrous

Non-rivalrous goods are those where one individual's consumption does not diminish the availability or quality of the good for others. Thus, multiple people can enjoy the good simultaneously without affecting others' ability to do so.

Examples include:

• Parks: Multiple visitors can enjoy the greenery and spaces without depleting the park's availability.
• Fireworks Displays: Everyone in the vicinity can enjoy the spectacle without interrupting or reducing others' experiences.

This quality of being non-rivalrous makes these public goods excellent candidates for funding through general taxation, as they provide widespread benefits that do not diminish with broader usage.