2. What is Public Finance?
« Field of economics concerned with paying
for collective or governmental activities, and
with the administration and design of those
activities. » (wikipedia)
Essentially, what governments do and how to
pay for it.
Public finance is concerned with:
− Government expenditures: policy goals
− Ressource mobilizations: intergenerational
equity
Enterprise Risk Advisory, LLC
3. What is Public Finance?
Types of government expenditures:
− Government consumption: yearly
− Governement investment: long-term
− Transfer payments
− Government operations
Sources of funding:
− Taxes: income and sales: fiscal policy
− Non-tax revenues: government entities
− Borrowing: impact on future generation
− Other: seigniorage Enterprise Risk Advisory, LLC
8. Actuarial Principles
Statistical Framework:
– Law of large numbers & credibility of models
Economic and Behavioral Framework:
– Explain behavior in terms of quantifiable
incentives and dis incentives
– Preference varies by stakeholders
– Time value of money: now vs later
– Money exists: Express economic
preferences in terms of money: ok what
about values?
Source: SOA/CAS Actuarial Principles Enterprise Risk Advisory, LLC
9. Actuarial Principles
Facts-based profession:
− « Substitute facts for appearances » SOA
Motto
− Fit with the New Public Management:
efficiency, effectiveness
Model construction of outcomes & effects
− Economic and behavioral framework
Actuarial Risk: Random variables with
desirable or non desirable economic
consequences
Source: SOA/CAS Actuarial Principles Enterprise Risk Advisory, LLC
10. Actuarial Principles
Financial Security Systems:
– Risk system where participants transfer one
or more undesirable actuarial risks to a
second party
– Risk experience: data and facts
– Antiselection & moral hazard
– Actuarial soundness and degree
– Intergenerational equity: MR Addition
Source: SOA/CAS Actuarial Principles Enterprise Risk Advisory, LLC
12. Actuarial Roles
Policy Evaluations:
− Measuring and modeling impacts – short-
term and long-term – of different public
policies, not outputs as usually done in
governements
− Evaluation ex-ante and ex-post
Participate in long-term financing decisions:
− Especially relevant for local governments
− Long-term liabilities. Ex. water systems
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13. Actuarial Roles
Advise on long-term financial and non financial
costs/benefits of:
− Different funding policies: PPP vs debt issue
− Assessment of different public policies:
Ex: More police vs more social benefits
− Regulation vs direct government involvement
Advise on societal emerging risk issues (Societal
Governance). Ex. longevity
Bring independence, credibility and non biaised views
and recommendations: Work for the public interest!
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14. Ex. Scottish Policy Evaluation
Checklist
Similar to an actuarial appraisal!
Identify, quantify and value costs, benefits,
risks and uncertainties of options & objectives
Present results:
– Compare immediate and ultimate relationships
between outputs and objectives
– Present costs and benefits not valued
– Present timing of outputs, timing & discount
rate
– Choose alternative states of the world &
compare expected with realitynterprise Risk Advisory, LLC
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