Public Finance in Times of Crisis: Examining the Musgrave Theory - Essay Sample

According to the Musgrave tradition, the government has three main functions: allocation of resources, the achievement of the fair distribution of wealth and income, and sustaining a stable state of the economy (Richard Musgrave Theory, n.d.). These functions are critical in the scope of public finance as they supplement the public income, expenditure, debt, and the financial administration, especially amid a crisis like the current Covid-19 pandemic. This article will discuss the various steps that the United States government has taken that align with Richard Musgrave's view.

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The function that the US government has executed excellently is the allocation function, where it has provided near-zero interest rates, through cutting the federal funds rates by about 1.5 percent from early March, binging it to almost 0 to 0.25 percent, enabling individuals to acquire finances at lower rates (Cheng et al., 2020). The government has also initiated purchasing a massive amount of securities totaling to above $500 billion to retain business operations (Cheng et al., 2020). Amid the various protests witnessed during the crises, the government has tried to maintain law and order, providing healthcare through massive testing and immediate treatment plans, facilitated by the expanded healthcare and Medicare insurance.

The government has developed critical being tax incentives, like allowing the businesses to differ payroll taxes and allowing the business to use the losses in recent years to offset the non-business income, thus achieving the distribution function (Peterson Foundation, 2020). In the distribution function, the government has also enacted the Paycheck Protection Program (PPP) and Healthcare Enhancement Act, totaling $483 billion, and a further 383 billion that will support the small enterprises, to solve the looming unemployment (Peterson Foundation, 2020).

In the stabilization function, the senate has approved an approximately $2 trillion stimulus plan, whose goal is paying the jobless, the taxpayers, and a $500 billion payment to distressed organizations (Cochrane & Fandos, 2020). This plan will impact every facet of the Americans by salvaging and reviving the world's economic hub (Richard Musgrave Theory, n.d.).

The measures are sufficient as the economy is still afloat. However, I would recommend the federal government to enhance the automatic stabilizers such as the tax codes and the safety codes that offset economic activity fluctuation, leading to increased national government expenditure financial crisis. The US government can also check the economic measures taken by other countries to inform a better current and future response.

References

Cheng, J., Skidmore, D., & Wessel, D. (2020, March 31). What’s the Fed doing in response to the COVID-19 crisis? What more could it do? Brookings; Brookings. https://www.brookings.edu/research/fed-response-to-covid19/

Cochrane, E., & Fandos, N. (2020, March 25). Senate Approves $2 Trillion Stimulus After Bipartisan Deal. The New York Times. https://www.nytimes.com/2020/03/25/us/politics/coronavirus-senate-deal.html

Richard Musgrave's theory of public finance - YouTube. (n.d.). Www.Youtube.Com. Retrieved August 31, 2020, from https://www.youtube.com/watch?v=e2_Ni0pSngY

Peterson Foundation (2020, April 24). Here’s Everything Congress Has Done To Respond To The Coronavirus So Far. Www.Pgpf.Org. https://www.pgpf.org/blog/2020/04/heres-everything-congress-has-done-to-respond-to-the-coronavirus-so-far‌