Lectures on Public Economics Anthony B. Atkinson Joseph E. Stiglitz PRINCETON UNIVERSITY PRESS Princeton and Oxford
Contents Introduction Preface Introductory Note to the 1980 Edition xi xxvii xxix PART ONE THE ANALYSIS OF POLICY Lecture 1 Introduction: Public Economics 3 1-1 Introduction 3 1-2 Role of the Government 4 1-3 Guide to the Lectures 8 Note: The Public Sector Statistical Background 12 Lecture 2 Household Decisions, Income Taxation, and Labour Supply 19 2-1 Introduction 19 2-2 Income Taxation and Labour Supply 26 2-3 Broader Models of Labour Supply 36 2-4 Empirical Evidence on Labour Supply 40 2-5 Concluding Comments 47 Note on the Expenditure Function 48 50 Lecture 3 Taxation, Savings, and Decisions over Time 3-1 Intertemporal Decisions and Taxation 3-2 The Basic Intertemporal Model 3-3 Developments of the Model and Alternative Views 3-4 Empirical Evidence Taxation and the Interest Elasticity of Savings 3-5 Concluding Comments Lecture 4 Taxation and Risk-Taking 4-1 Risk-Taking and Portfolio Allocation 4-2 Effects of Taxation 4-3 Special Provisions of the Tax System 4-4 Generalization of Results 4-5 Concluding Comments Note on Risk Aversion Lecture 5 Taxation and the Firm 5-1 Taxes and the Firm 5-2 Corporation Tax and the Cost of Capital 5-3 Taxation and Investment 51 51 56 66 74 77 78 79 79 85 91 96 102 103 104 105 105 108 117
viii CONTENTS 5_4 A Wider View of Investment 1 li 5-5 Empirical Investigation of Taxation and Investment 127 5-6 Concluding Comments 130 131 Lecture 6 Tax Incidence: Simple Competitive Equilibrium Model 132 6-1 Introduction: Tax Incidence I 32 6-2 Static Two-Sector Model 136 6-3 Incidence of Corporation Tax 142 6-4 General Tax Incidence 147 6-5 Incidence in a Two-Class Economy 155 6-6 Numerical Applications of the Model 159 6-7 Concluding Comments 163 Note on the Cost Function 164 165 Lecture 7 Tax Incidence: Departures from the Standard Model 166 7-1 Introduction 166 7-2 Market Imperfections 167 7-3 Monopolistic Competition 172 7-4 Structure of Production 180 7-5 Non-Market-Clearing 184 7-6 Concluding Comments 188 188 Lecture 8 Taxation and Debt in a Growing Economy 189 8-1 Introduction 189 8-2 An Aggregate Model of Equilibrium Growth 191 8-3 Growth and Taxation 197 8-4 Taxation in a Life-Cycle Model 202 8-5 Bürden of the National Debt 208 8-6 Concluding Comments 214 215 Lecture 9 Distributional Effect of Taxation and Public Expenditure 216 9-1 Taxation, Spending, and Redistribution 216 9-2 Modelling the Distribution of Income 222 9-3 Distributional Incidence 231 9-4 Empirical Studies of the Redistributive Impact of the Government Budget 235 9-5 Concluding Comments 244 245 Lecture 10 Theories of the State and Public Economic; 246 10-1 Introduction 246 10-2 Voting and Decisions 250 10-3 Administration and Bureaucracies 259 10-4 Power, Interest Croups, and Marxist Theories 263 10-5 Empirical Studies of Public Expenditure 268 274
PART TWO THE DESIGN OF POLICY CONTENTS ix Lecture 11 Introduction to Part Two: Normative Analysis 277 11-1 Introduction 277 11-2 Normative Theories of the State 279 11-3 Pareto Efficiency and Weifare Economics 285 11-4 Standard Public Finance Objectives 291 11-5 Range of Government Instruments 296 Note on the Measurement of Income Inequality 302 303 Lecture 12 The Structure of indirect Taxation 304 12-1 Introduction 304 12-2 The Ramsey Tax Problem 308 12-3 Application of the Ramsey Results 313 12-4 Partial Weifare Improvements and Tax Reform 318 12-5 Optimal Taxation in a Many-Person Economy 322 12-6 Concluding Comments 327 327 Lecture 13 The Structure of Income Taxation 328 13-1 Introduction 328 13-2 A Simple Model 331 13-3 Linear Income Tax 338 13-4 General Income Tax 343 13-5 Concluding Comments 352 353 Lecture 14 A More General Treatment of the Optimal Tax Problem 354 14-1 Introduction 354 14-2 Indirect Taxes and Linear Direct Taxation 357 14-3 Nonlinear Tax Schedules and Tax Exemptions 364 14-4 Taxation of Savings 370 14-5 Externalities in Corisumption and Corrective Taxes 378 14-6 Concluding Comments 381 382 Lecture 15 Public Sector Pricing and Production 383 15-1 Introduction 383 15-2 Departures from Marginal Cost Pricing 386 15-3 Choice of Technique and Production Efficiency 394 15-4 Cost-Benefit Analysis and Social Rate of Discount 398 15-5 Concluding Comments 402 403 Lecture 16 Public Goods and Publicly Provided Private Goods 404 16-1 Introduction 404 16-2 Optimum Provision of Pure Public Goods Efficiency 408 16-3 Optimum Provision of Pure Public Goods Distribution 415 16-4 Publicly Provided Private Goods 417 16-5 Equilibrium Levels of Public Expenditure 424 16-6 Revelation of Preferences 430 434
X CONTENTS Lecture 17 Local Public Goods 435 17-1 Introduction 435 17-2 Optimum Provision of Local Public Goods 437 17-3 Market Equilibria and Optimality: Identical Individuais 446 17-4 Market Equilibria and Optimality: Heterogeneous Individuais 452 17-5 Fiscal Federalism 461 465 Lecture 18 Public Economics: Theory and Policy 466 18-1 On the Sources of Disagreement in Policy Analysis 466 18-2 Thinking about Policy: Taxation 470 18-3 Thinking about Policy: Expenditures 476 18-4 Policy Reform and Political Economy 479 Bibliography 481 Autbor Index 509 Subject Index 513