Public Finance- Benefits and Challenges of Government Bail Out, Employment Preservation - Literature review Example

Name: Course: Tutor: Institution: Date: Public Finance- Government Bailouts Research Paper Introduction Public finance is a widely debated topic across the globe with arguments on its management structures increasingly emerging. In this regard, governments have over the years adopted varied management approaches through which to manage public finances. Under the public finance debate, two key concern issues emerge namely the revenue collection as well as expenditure approaches. On one hand, revenue collection includes the approaches through which governments and respective authorities collect funds from the economy through avenues such as bails and bonds and taxation. On the other hand, is public expenditure, which seeks to examine avenues through which the collected funds are used. On e such public expenditure avenue is government bail outs1. Bail outs represent situations in which governments channel in funds into organizations to safeguard against their collapse. Despite arguments development of the relevance of such public finance expenditure, critics argue against its application, an s a waste of public funds for organizational management failures. This paper develops an exploratory research through which it critically evaluates the concept of governments’ bailouts with respect to its benefits and challenges. Benefits of Government Bail Out Revenue Gains Bird2 conducted a study to evaluate the role and concepts of public finance expenditure in the economy. In this regard, the study established that governments would achieve increased revenue collections through participating in constructive and rewarding expenditure avenues. In this regard, the study recommended on the need for the government to establish self generating revenue models through which public funds can be generated without increasing the tax burden on the public. One such approach is through government bail outs. In this regard, bail outs are such a form of constructive public expenditures through which an economy earns increased revenues. Ramirez3 discussed on the concepts of government bail outs. In this regard, the approach sought to shed light and eradicate the myth that government bail outs were a misuse of public funds. In this regard, the funds allocated are offered in terms of loans. In this regard, governments extend bail outs in terms of loans to the corporate sector. As such, the bail serves to benefit the government on two fronts. On one hand, they serve as a savings form in which the funds are set aside to utilization and expenditure in the long-term. On the other hand, the advanced bails out loans earn the government interest. Therefore, the organizations are required to pay back the bail out at predetermined interest rates. Therefore, this implies that the bailout serve as a source of public finance revenue in the long run4. Therefore, although the expenditure might reduce governments’ disposable funds in the long run, it facilitates increased public finance revenue in the long run, and thus a worthy public finance expenditure. Employment Preservation The global market is experiencing increased unemployment rates. In this regard, unemployment’s rates have risen globally in the last decade. Helgesson, Johansson, Nordqvist, Lundberg and Vingård5 described unemployment as a situation in which individuals’ skills and expertise lack matching economic activities involvement. In this regard, such individual skills remain underutilized or even unutilized at all. Therefore, economically, employment occurs on two fronts with one on skills mismatch and the second on failure to appropriately utilize such skills. Public finance is directly impacted by employment and unemployment rates in an economy. In this regard, it is imperative to establish that governments obtain taxes such as income taxes from actively employed individuals in the economy. As such, increased employment rates imply increased public finance revenues. In contrast, increased unemployment rate indicate decreasing government revenues and a huge decline in public finance collected funds. Therefore, the governments directly involved in economic efforts aimed at increasing overall national employment rates. In this regard, the encouragement of business ventures and their expansion in the economy forms part of the employment enhancement mission. In the event of a large corporation in an economy collapse, the governments stand to lose on two fronts. On one hand, business taxes collected from such corporations would be reduced as well as taxes collected on respective corporate employees6. On one hand, in this regard, the government has an economic obligation to inject funds into such corporations in order to retain the public finance revenue stream. On the other hand, loss of jobs would reduce standards of living for the affected employee group. Consequently, increased corporate collapses would implicate on social living standards negatively. Therefore, under the social obligation of a government to its citizens, governments are obliged to eliminate such occurrences through organizational bail outs. Therefore, governments bail outs economical benefit the society in the long run on both increased employment opportunities as well as facilitating increased and improved standards of living in an economy. Therefore, based on this governmental economic-social obligation it is evident that government bailouts though expensive at times, are necessary measures in enhancing steady and developing public finance structures. Protection of Vital Services Bail out serves as a necessary governmental measure for ensuring the provision of vital services and products into the market thus safeguarding economic gains obtained over the years. Achola7 reviewed on the likely implications for the absence and essential economic services such as communication, transport and other social amenities. In this regard, the study concluded that a shortage or lack of such services risked economic performances degradation and collapse. In a review of the merits of organizational governments bail outs, Davis and Yugay8 evaluated on the causes of organizational collapse. While as poor management structures emerged as the key collapse se causes, the study established that extraneous factors such as catastrophes could be blamed for such collapses. For instance, terrorist attacks and earthquakes. In this regard, such occurrences expose affected organizations to eventual market failure and collapse. Letting such hit organizations collapse would spell disasters to the respective governments and their economies at large. For instance, besides employment rates reductions, such collapses would lead to reduced overall government revenues and social standards degradation due to social amenities deficiency. In this regard, governments are ethically obliged to bail out such organizations, although there lacks any legal compulsion for such activities. For instance, the USA government bailed out airlines affected by the September 11 terrorist attack to prevent their collapse due the unexpected short run demand fall. Such a bail out as statistics demonstrate is viable in that the bailed out airlines remain competitive to date and earn the USA federal government revenue as a source for its public finance. Thus, bail outs under public finance are justified not just under legal provisions, but also as part of the ethical and social obligations of the government to the private sector. Challenges on Government Bail Outs Although government bailout as established is an imperative economic and social approach in facilitating economic development, as the principles of public finance dictate, its wide application increases poor management trends. Xiao-Hua, Zhang and Yang9 conducted a study evaluating organizational risk management structures with respected to unexpected occurrences. On one hand, the study established that organizations are markets with minimal government support and especially the private sector recorded increased risk management systems efficiency. In these regard, such organizations established systems to govern against their collapse. On the contrary, organizations operating in sectors with increased government support and the public sector organizations registered minimal and in efficient risk management structures. In this regard, the study concluded that such organizations laxed their risk management systems due to the knowledge that in the event that the risks implicated on the organizations, the government would intervene to bail them out. Therefore, bail outs increase economic efficiency through the gains and principles of capitalism. Capitalism evolved due to inefficiencies experienced with increased government interventions in an economy. As such, under the Keynesian approach, the capitalism system established that government involvement in an economy should be restricted to regulatory and supervisory roles. Therefore, the approach advocated that the economy would evolve to perfection and efficiency through increased interplay of the forces of demand and supply. Through t-such a system, market players would learn to develop appropriate mitigation strategies to curb against organizational collapse. Further, in the event of eventual and imminent organizational collapse, the approach provided for a free economy balancing approach. In this case, the approach argued in favor of mergers, acquisitions and takeovers as alternatives to government bail outs. As already established government bail outs seek to enhance organizational retainance in business in order to offer business tax payment continuity as well as retain employment opportunities for their respective workforces. However, this function can be obtained through acquisitions and takeovers. Brown10 stated that under acquisitions and takeovers, organizational employees retain their employment although the employment contractual terms may vary. Therefore, the author argued that in this regard, in the event that their interested parties in acquisitions and takeovers, the government should only provide a regulatory framework for such management changes. However, the review noted that in the event that the market lacks willing partners for mergers, acquisitions, or takeovers, the government bailout option would be considered as the best alternative and thus justified. Therefore, based on the above b=government bailout critique, it is apparent that government bailout is considered as economic interference under the capitalist economic system and thus unjustified under the public finance expenditure regulations. As such, alternative options such as acquisitions and takeovers are established as viable and better alternatives to government involvement. Conclusion In summary, this research paper reviews public finance expenditure. In this regard, based on the principles of public finance expenditure, the paper evaluates on the justification trend for government bail outs. Thus, the paper evaluated the benefits of the approach against its challenge and critique. On one hand, under the benefits evaluation, the research paper established three key justifications namely revenue gains, employment rates enhancement, and preservation of vital services. Under this review, the research paper establishes that government bailouts are a governmental obligation economically, socially and ethically. Therefore, the benefits review concludes that the expenditure abides by the principles of public spending and thus justified public finance expenditure. However a challenges and critic evaluation establishes contrasts to the capitalists economic system principles, In this regard, the paper establishes that the system requires minimal government involved, majorly restricted to regulation and supervision. Moreover, the paper establishes that there exist alternative economically viable alternatives for rescuing collapsing corporations rather than through government bailouts. As such, the review establishes that market alternatives such as mergers, acquisitions and takeovers serve as ideal alternatives. However, in summary, the paper concludes that government bailout is justified if such alternatives are inexistent or if they fail to reflect the overall economic goodwill desired. Work Cited Achola, Hesbon O. Koch Life: Community Sports in the Slum. Nairobi: Paulines Publications Africa, 2006. Print. Bird, Richard M. "Public Finance in a Democratic Society. Volume III. the Foundations of Taxation and Expenditure." National Tax Journal 54.1 (2001): 175-82. Brown, Meredith M. Takeovers: A Strategic Guide to Mergers and Acquisitions. New York: Aspen Publishers, 2010. Print. Davis, Paul J., and Yevgeniya Yugay. "Corporate Identity and Employee Behavior Management in Kazakhstan: Contrasting Experiences of Indigenous and Multinational Companies." The Journal of Applied Business and Economics 13.4 (2012): 144-54 Helgesson, Magnus, et al. "Unemployment at a Young Age and Later Unemployment in Native Swedish and Immigrant Young Adults." Modern Economy 5.1 (2014): 24-31. Ramirez, Steven A. Lawless Capitalism: The Subprime Crisis and the Case for an Economic Rule of Law. New York: New York University Press, 2013. Print. Rosas, Guillermo. Curbing Bailouts: Bank Crises and Democratic Accountability in Comparative Perspective. Ann Arbor: University of Michigan Press, 2009. Print. Toporowski, Jan. Why the World Economy Needs a Financial Crash and Other Critical Essays on Finance and Financial Economics. London: Anthem Press, 2010. Print. Wright, Robert E. Bailouts: Public Money, Private Profit. New York: Columbia University Press, 2010. Print. Xiao-Hua, Jin, Guomin Zhang, and Rebecca J. Yang. "Factor Analysis of Partners' Commitment to Risk Management in Public-Private Partnership Projects." Construction Innovation 12.3 (2012): 297-316. Read More