In United States federal legislation, the term budget sequestration (or sequeste

Question

In United States federal legislation, the term budget sequestration (or sequester) refers to automatic spending cuts in particular categories of federal outlays. The Budget Control Act of 2011 (BCA) lowers spending by a total of approximately $1.1 trillion versus pre-sequester levels over the 2013-2021 period. The cuts are split evenly (by dollar amounts, not by percentages) between the defense and non-defense categories. According to recent reports, the effects of the sequester are starting to be felt throughout the economy.

According to Steve Benen of the Maddow Blog “Ordinarily on the 4th of July, many U.S. military bases host fireworks displays for the community, but this year sequestration cuts have caused several cancellations. Camp Lejeune, Fort Bragg, and Shaw Air Force Base, among others, have scrapped he traditional celebrations, citing “fiscal challenges.” From an economics perspective, why might the government need to provide fireworks displays? What is the socially optimal level of provision? Demonstrate and explain. (hint: consider the characteristics of a fireworks display)

How should the government finance the provision of the fireworks show? Why? Explain. (hint: compare the chosen funding mechanism to alternative funding mechanisms and consider how close each comes to the socially optimal level of provision).

What type of funding would provide the socially optimal outcome? Demonstrate and explain your answer. Is it likely for the government to achieve this outcome? Why or why not? Explain.

Explanation / Answer

In United States federal legislation, the term budget sequestration (or sequester) definitely refers to automatic spending cuts in particular categories of federal outlays. The Budget Control Act of 2011 (BCA) lowers spending by a total of approximately $1.1 trillion versus pre-sequester levels over the 2013-2021 period. The cuts are split evenly (by dollar amounts, not by percentages) between the defense and non-defense categories. According to recent reports, the effects of the sequester are starting to be felt throughout the economy.

Government should finance the provisio of the fireworks by searching for sponsors of corporate world who might be intrested in advertising their products. Rate for each type of sponsor should be very different. In this way, government can maximize the total finance. This type of funding would provide socially optimum outcome.

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