Economics of the Public Sector

Transcription

1 ECONOMICS OF THE PUBLIC SECTOR 1 Economics of the Public Sector Lecturer: Natalia V. Rakuta Class teacher: Natalia V. Rakuta Course description This course provides a basis for the economic analysis of public policy issues. It analyses the role of public sector in the economy, its functions, management techniques, taxation, and the efficiency of the resources usage. The focus of the course is on the main parts of public finance taxation and spending. Issues related to the role of the state, public choice, management of public assets and liabilities, and fiscal federalism are also examined. The course develops an analytical framework for the evaluation of public policy. Prerequisites The prerequisites of the course are intermediate microeconomics and macroeconomics, calculus. Teaching objectives The main aim of the course is to develop analytical tools and demonstrate their application to key policy issues relating to the spending, taxation and financial activities of the government. After studying the course students should know main theoretical concepts and models, be able to analyse the influence of taxation and public spending on the economy, discuss different questions, related to the public sector, and solve problems. Teaching methods During the course following methods and teaching forms are used: Lectures Classes Group presentations Self-study tasks Student s self-study tasks include reading chapters in the textbook and additional literature (articles) about current economic situation in the public sector, preparing individual and group presentations, and solving homework problems.

2 2 Assessment Control takes the following forms: written home assignments (4 units); group presentations (2 times); midterm exam (80 min.); final exam (120 min). Grade determination All types of assessment are graded on a 100-point scale Course grade is determined by: home assignments (40 points), class discussions (20 points), and presentations (40 points) (in total mark the weight of this part is 20%); midterm exam (30%); final exam (50%). The following scale is used to convert grades from 100 to 10-point scale: ; ; ; ; ; ; ; ; ; Main reading Hindriks, J. and G.D. Myles Intermediate Public Economics. (Cambridge: MIT Press, 2013) second edition Additional reading The reading guidance is provided weekly to each class Textbooks: Stiglitz, J. Economics of the Public sector, 3 rd ed., W.W.Norton&Company, Cullis, John G., and Philip R. Jones Public finance and public choice: analytical perspectives. Oxford: Oxford University Press. Mueller, D.C. Public Choice III. (Cambridge: Cambridge University Press, 2003). Rosen, H., Gayer T., Civan A. Public Finance, 10th ed., Mcgraw-Hill/Irwin, Articles: Akerlof, G. The market for lemons: quality uncertainty and the market mechanism, Quarterly Journal of Economics , pp

3 ECONOMICS OF THE PUBLIC SECTOR 3 Alesina, A. and E. Spolaore On the number and size of nations, Quarterly Journal of Economics , pp Alesina, A., Fassarelli F. Regulation versus taxation, Journal of Public Economics , pp Arrow, K.J. A difficulty in the concept of social welfare, Journal of Political Economy , pp Atkinson, A.B. On the measurement of inequality, Journal of Economic Theory , pp Atkinson, A.B. On the measurement of poverty, Econometrica, (55) 1987 pp Banzhaf, H. S., Chupp B. A. Fiscal federalism and interjurisdictional externalities: New results and an application to US Air pollution, Journal of Public Economics 96 (5-6) 2012, pp Barth, E., Moene K. O., Willumsen F. The Scandinavian model An interpretation, Journal of Public Economics , pp Bennmarker, H., Grönqvist E., Öckert B. Effects of contracting out employment services: Evidence from a randomized experiment, Journal of Public Economics 98, pp Bergstrom, T.C., L. Blume and H. Varian On the private provision of public goods, Journal of Public Economics , pp Bird, R.M. Wagner s law of expanding state activity, Public Finance, (26) 1971, pp Blundell, R. Labour supply and taxation: a survey, Fiscal Studies , pp Boadway, R., Tremblay J. F. Reassessment of the Tiebout model, Journal of Public Economics 96 (11-12) pp Buchanan, J.M. and R.A. Musgrave Public Finance and Public Choice: Two Contrasting Visions of the State. (Cambridge: MIT Press, 1999) [ISBN hbk]. Buchanan, J.M., R.D. Tollison and G. Tullock Towards a Theory of the Rent-Seeking Society. (College Station: Texas A and M Press, 1980) [ISBN hbk]. Burgess, D. F. Reconciling alternative views about the appropriate social discount rate, Journal of Public Economics 97 pp Coase, R.H. The problem of social cost, Journal of Law and Economics , pp Cockburn, J., Duclos J.-Y., Zabsonré A. Is global social welfare increasing? A criticallevel enquiry, Journal of Public Economics , pp Cremer, H., Roeder K. Long-term care policy, myopia and redistribution, Journal of Public Economics , pp Diamond, P.A. and J.A. Mirrlees Optimal taxation and public production 1: Production efficiency and 2: Tax rules, American Economic Review , pp.8 27 and pp Duffie, D. and H. Sonnenschein Arrow and General Equilibrium Theory, Journal of Economic Literature , pp Epple, D. and T. Romer Interjurisdictional sorting and majority rule: an empirical analysis, Econometrica, (69), 2001, pp Epple, D., Romano R. On the political economy of educational vouchers, Journal of Public Economics , pp Feddersen, T.J. Rational choice theory and the paradox of not voting, Journal of Economic Perspectives, (18) 2004, pp Fergusson, L. Media markets, special interests, and voters, Journal of Public Economics , pp

4 4 Foremny, D., Riedel N. Business taxes and the electoral cycle, Journal of Public Economics , pp Großer, J., Reuben E. Redistribution and market efficiency: An experimental study, Journal of Public Economics , pp Han, Y., Pieretti P., Zanaj S., Zou B. Asymmetric competition among nation states: A differential game approach, Journal of Public Economics , pp Harberger, A.C. Monopoly and resource allocation, American Economic Review , pp Hindriks, J. and P. De Donder The politics of redistributive social insurance, Journal of Public Economics, (87) 2003, pp Hindriks, J. The consequences of labor mobility for redistribution: tax versus transfer competition, Journal of Public Economics , pp Janeba, E., Osterloh S. Tax and the city A theory of local tax competition, Journal of Public Economics , pp Johannesen, N. Tax avoidance with cross-border hybrid instruments, Journal of Public Economics , pp Lakdawalla, D., Sood N. Health insurance as a two-part pricing contract, Journal of Public Economics , pp Laffont, J.-J. Incentives and Political Economy. (Oxford: Oxford University Press, 2002) [ISBN pbk]. Levy, N., Pauzner A. Government's credit-rating concerns and the evaluation of public projects, Journal of Public Economics , pp Marie, O., Castello J. V. Measuring the (income) effect of disability insurance generosity on labour market participation, Journal of Public Economics 96 (1-2) 2012, pp Myles, G.D. On the optimal marginal rate of income tax, Economics Letters, (66) 2000, pp Niskanen, W.A. Non-market decision making: the peculiar economics of bureaucracy, American Economic Review , pp Oates, W.E. Fiscal Federalism. (New York: Harcourt Brace Jovanovich, Academic Press, 1972) [ISBN X hbk]. Peacock, A.K. and J. Wiseman The Growth of Public Expenditure in the United Kingdom. (Princeton: Princeton University Press, 1961) [ISBN hbk]. Roberts, K. Voting over income tax schedules, Journal of Public Economics, (8) 1977, pp Samuelson, P.A. Reaffirming the existence of reasonable Bergson-Samuelson social welfare functions, Economica , pp Sen, A.K. On Economic Inequality. (Oxford: Oxford University Press, 1997) [ISBN pbk]. Spataro, L., Renström T. I. Optimal taxation, critical-level utilitarianism and economic growth, Journal of Public Economics 96 (9-10) pp Tanzi, V. and L. Schuknecht Public Spending in the 20th Century: A Global Perspective. (Cambridge: Cambridge University Press, 2000) [ISBN pbk]. Tiebout, C.M. A pure theory of local expenditure, Journal of Political Economy , pp Traxler, C. Majority voting and the welfare implications of tax avoidance, Journal of Public Economics 96 (1-2) 2012, pp Ujhelyi, G. Civil service reform, Journal of Public Economics , pp

5 ECONOMICS OF THE PUBLIC SECTOR 5 Tullock, G. The welfare costs of tariffs, monopolies and theft, Western Economic Journal, (5) 1967, pp Vickers, J. Concepts of competition, Oxford Economic Papers , pp Wilson, J.D. A theory of interregional tax competition, Journal of Urban Economics , pp Course outline 1. Introduction to Public Economics Introduction. Public Economics. Subject and methods. Government. Historical development. Measurements. Revenues and expenditures. Functions of the Public sector. The minimal state. Market failure. Redistribution. 2. Market Failure The first and the second fundamental theorems of welfare economics. Pareto efficiency. Source of market failure: competition failure, incomplete markets, information failure, externalities, public goods. The theory of externalities. Coase theorem. Pigouvian taxation. The theory of public goods. Club goods and local public goods. Efficiency conditions for public goods. Mechanism design. Private provision of public goods. Second-best principle. Imperfect competition and government regulation. Welfare loss. Asymmetric information and government solutions. 3. Voting Public mechanisms for allocating resources: problems of eliciting preferences and reconciling differing views. Voting. Majority voting: the median voter theory and the voting paradox. Arrow s Impossibility Theorem. 4. Rent-seeking Special interest groups. Rent-seeking behaviour. Controlling rent-seeking. Theory of bureaucracy. Principal - agent problem. Government failure. 5. Income, inequality and poverty Pareto efficiency versus alternative criteria. Equity and efficiency. Social welfare functions. Alternative theories of the role of the state. Redistribution and its effects. Inequality and poverty. The role of social insurance. Health care. Retirement pensions: funded and pay-as-you-go state pensions. Efficiency: effects on savings and retirement decisions. Approaches to income support. Welfare programs, targeting and incentives. Integrating taxes and benefits. 6. Commodity taxation Types of taxes. The five desirable characteristics of a tax system. Tax incidence in competitive and monopolised markets. DWL and price elasticity. Equivalent taxes. Achieving tax neutrality. Effects of globalisation. Optimal commodity taxation: the Ramsey rule.

6 6 7. Income taxation Taxes and labour supply: taxes and the individual budget constraint; income and substitution effects; non-linearities due to progressive taxation. Taxation of capital. Taxes and savings. Distributional considerations. Modelling tax evasion. Policies to reduce tax evasion. 8. Theories of the public sector. Efficiency issues The size of public expenditures. Wagner s law, Baumol s law, a political model, budget-setting, etc. Public provision versus public procurement. Efficiency of public expenditures. Cost-benefit analysis. 9. Multiple Jurisdictions Fiscal federalism. Arguments for multi-level government. The division of responsibilities. Principles of fiscal federalism: club theory and local public goods, Tiebout hypothesis. Production versus finance. The incidence applied to local public finance. Fiscal competition: problems of multi-jurisdictional taxation; income distribution; inter-governmental transfers. Distribution of hours # Topic Total Contact hours Self hours Lectures Seminars study 1. Introduction to Public Economics 2. Market Failure Voting Rent-seeking Income, inequality and poverty Commodity taxation Income taxation Theories of the public sector Multiple Jurisdictions Total: