University of Nevada, Reno

University of Nevada, Reno

Department of Economics

ECON 751.001 – Public Economics

(Tuesday & Thursday 5:30 – 6:45 pm, AB 205)

Fall 2009 Mehmet S. Tosun

Office: AB319F

Phone: 775-784-6678

Email:

Homepage: http://www.coba.unr.edu/faculty/tosun

Office Hours: W 3:00 – 4:30 pm

or by appointment.

Course Description: This is a graduate level course on public finance. The goal is to introduce students to public finance and provide them with the theory and some empirical evidence on the expenditure and taxation functions of the government. The course is primarily geared to Master’s and Ph.D. students.

Course Objectives: Specific objectives are:

1.  Examine the rationale behind government’s involvement in the economy.

2.  Provide the student with the methodology used in the evaluation of government activities.

3.  Analyze the efficiency and equity aspects of major taxation forms and tax reform.

4.  Inform the student about the structure and character of public finance in the U.S. and elsewhere.

5.  Acquaint students with some of the empirical research related to taxation and government expenditure.

Students with Disability: If you have a disability and will be requiring assistance, please contact me or the Disability Resource Center (Thompson Building Suite 101) as soon as possible to arrange for appropriate accommodations.

Reading Assignments: The reading list below is rather extensive. The readings with an asterisk “*” are required and will be covered in class.

Recommended Textbooks:

Tresch, Richard. 2002. Public Finance: A Normative Theory, Second Edition. San Diego, CA: Academic Press.

Tresch, Richard. 2008. Public Sector Economics. New York, NY: Palgrave MacMillan. Student companion web site can be accessed at http://www.palgrave.com/economics/tresch/students/index.html

Background Texts: These are undergraduate level references for background reading for an overview of taxation principles and U.S. tax system.

Auerbach, A.J. 2000. Public Finance: Worth Series in Outstanding Contributions. New York, NY: Worth Publishers

Browning, E.K. and J.M Browning. 1994. Public Finance and the Price System, Fourth Edition, Upper Saddle River, New Jersey: Prentice Hall.

Bruce, N. 2001. Public Finance and the American Economy, Second Edition. New York, NY: Addison, Wesley.

Cordes, J.J., R.D. Ebel and J.G. Gravelle. 1999. The Encyclopedia of Taxation and Tax Policy, Washington, D.C.: The Urban Institute Press.

Graetz, M. J. 1999. The U.S. Income Tax, New York: Norton.

Gruber, Jonathan. 2005. Public Finance and Public Policy. New York, NY: Worth Publishers. (“Gruber”).

Hyman, D. N. 1999. Public Finance: A Contemporary Application of Theory to Policy (6th Edition). Fort Worth, TX: Dryden Press.

Musgrave, Richard A. 1959. The Theory of Public Finance: A Study in Public Economy, New York: McGraw-Hill.

Quigley, J.M. and E. Smolensky. 1994. Modern Public Finance, Cambridge: Harvard University Press.

Rosen, H. S. 2004. Public Finance (7th Edition). Boston: Irwin McGraw-Hill. On reserve

Slemrod, J., and J. Bakija. 2004. Taxing Ourselves: A Citizen’s Guide to the Debate Over Taxes, Third Edition, Cambridge: MIT Press.

Stiglitz, J.E. 2000. Economics of the Public Sector, Third Edition, New York, NY: W.W. Norton & Company.

Steuerle, Eugene. 2004. Contemporary U.S. Tax Policy, Washington, D.C.: The Urban Institute Press.

Tanzi, Vito and Howell Zee. 2001. Tax Policy for Developing Countries, Washington, D.C.: International Monetary Fund.

Reference Texts: These are graduate textbooks on public economics.

Atkinson, A.B. and J.E. Stiglitz. 1980. Lectures on Public Economics, New York: McGraw-Hill.

Auerbach, Alan J. and Martin S. Feldstein. 2002. Handbook of Public Economics, Volume 3 and 4, Amsterdam: North Holland.

Auerbach, Alan J. and Martin S. Feldstein. 1985. Handbook of Public Economics, Volume 1 and 2, Amsterdam: North Holland.

Cullis, J. and P. Jones. 1998. Public Finance and Public Choice. Second Edition. New York: Oxford University Press.

Jha, Raghbendra. 1998. Modern Public Economics, New York: Routledge.

Myles, Gareth D. 1995. Public Economics, Cambridge: Cambridge University Press.

Tresch, R. 1981. Public Finance: A Normative Theory, Plano, Texas: Business Publications, Inc.

Grading: The course grade is based on two problem sets (5% each), policy exercise (10%), a midterm exam (25%), a comprehensive final exam (30%), and a research paper (25%). Final exam is currently scheduled on Tuesday, December 15, 2009, 4:30 – 6:30 pm. Attendance to all class sessions is mandatory. This course uses a +/- scale for grading.

Late Assignments: Students are expected to complete the problem sets, policy exercise and the research paper by the due dates indicated below. Failure to do so will result in zero credit for that assignment. Instructor should be notified of any problems regarding the completion of the assignments prior to the deadlines.

Research Paper: The objective here is to provide students with a compact research

experience. Students are expected to turn this into a publishable paper. The writing of the paper will include the following four steps:

Brainstorming: Come up with three research ideas that interest you the most.

You can discuss these with me during my office hours. You will then choose one of these ideas as a research project for this semester.

Referee Report: Find a working paper (not a paper published in a journal) that is closely related to your research idea and write a referee report on it (see below for more information on the referee report). There should be a section where you discuss what you would have done differently if you had written that paper.

Proposal and Outline: Use the working paper from the previous step and your referee report as the starting point and write a one-page research proposal together with a detailed research outline that includes a preliminary list of references.

Presentation: Present a draft of the paper to the class for comments. The draft should be distributed in class one week before the presentation.

Referee Report: One interesting aspect of academic life is reading as well as writing referee reports for articles submitted to journals. Graduate students can greatly benefit from this exercise. Instructional material on how to write a referee report will be provided.

Policy Exercise: In this assignment you will analyze a fictitious policy case using the taxation tools you have learned in this class. This exercise will be assigned towards the end of the term.

Special Class Sessions: I plan to bring guest speaker(s) to complement our regular class sessions. These would be experts on specific aspects of public finance/public policy and may also include individuals who are involved with policymaking. Time permitting, I also plan to arrange special session(s) on topics that will be determined later. Guest speakers and special class sessions will be announced later in class.

Internet Information: Some of the papers in the reading list have hyperlinks to electronic copies through JSTOR and NBER databases and other publicly available journals such as National Tax Journal. On your electronic copy of the syllabus, you can click on links to have access to these papers in pdf.

Academic Integrity: Honesty and personal integrity are key facets of the University of Nevada community. The issue of academic integrity is taken very seriously at the University and College of Business Administration. Since the majority of students take pride in total academic integrity, it is hoped that you, as a student, will take action to influence the practice of integrity in academic community. I understand that students feel pressure to perform well in their classes, and I will do everything that I can to ensure that you have the resources necessary to succeed. However, cheating on exams and course assignments will not be tolerated, and students who fail to comply with the University’s honor code (www.unr.edu/stsv/acdispol.html, www.unr.edu/stsv/nsop/dishones.htm) will be subject to the maximum university penalties. Please visit the university website if you are unfamiliar with the actions which constitute academic dishonesty.

Outline of Topics and Readings:

1. Introduction and Review of Welfare Economics

Background: Tresch (2008), Chapters 1-3; Tresch (2002), Chapter 1, or from your favorite micro textbook. Also check the web site http://www.thenewpublicfinance.org/ for supporting materials on the New Public Finance.

*Buchanan, James M. and Richard A. Musgrave. 1999. Public Finance and Public Choice: Two Contrasting Visions of the State, Cambridge, MA: MIT Press. Chapter 1-2.1.

Buchanan, James M. 1987. “The Constitution of Economic Policy,” American Economic Review, 77 (3): 243-250. http://www.jstor.org

*Kaul, Inge and Pedro Conceicao. 2006. “Overview: Why Revisit Public Finance Today?” in The New Public Finance, Responding to Global Challenges. New York, NY: Oxford University Press: 1-27.

Musgrave, Richard A. and Peggy B. Musgrave. 1980. Public Finance in Theory and Practice, New York: McGraw-Hill. Chapter 1.

*Poterba, James M. 1998. “Public Finance and Public Choice,” National Tax Journal, 51 (2): 391-396. http://ntj.tax.org

2. Public Goods

Background: Tresch (2008) Chapters 4,5 and 8

Also check the web site http://www.globalpublicgoods.org/ for background papers and supporting materials on global public goods.

Lindahl, E. 1958. “Just Taxation – A Positive Solution,” in Musgrave and Peacock, eds., Classics in the Theory of Public Finance, Macmillan, pp. 168-176.

Musgrave, Richard A. 1939. “The Voluntary Exchange Theory of Public Economy,” Quarterly Journal of Economics, 53 (2): 213-237. http://www.jstor.org

*Oakland, W. 1987. “Theory of Public Goods.” Chapter 9, Handbook of Public Economics, Vol. 2, pp. 485-535.

*Samuelson, P.A. 1954. “The Pure Theory of Public Expenditure,” Review of Economics and Statistics, 36 (4): 387-389. http://www.jstor.org

*Samuelson, P.A. 1955. “Diagrammatic Exposition of a Theory of Public Expenditure,” Review of Economics and Statistics, 37 (4): 350-356. http://www.jstor.org

Sandmo, Agnar. 2003. “International Aspects of Public Goods Provision,” in Providing Global Public Goods, I.Kaul, P. Conceicao, K.Le Goulven and R.U.Mendoza eds. New York, NY: Oxford University Press: 112-130.

3. Externalities

Background: Tresch (2008), Chapters 6 and 7; Tresch (2002), Chapter 5

Bovenberg, A. Lans and Lawrence H. Goulder. 2001. “Environmental Taxation and Regulation,” NBER Working Paper No. 8458. http://papers.nber.org/papers/W8458

Also in Handbook of Public Economics, Volume 3, Amsterdam: North Holland.

*Coase, R. 1960. “The Problem of Social Cost,” Journal of Law and Economics, pp.1-44.

Ebrill, L. and S. Slutsky. 1982. “Time, Congestion, and Public Goods,” Journal of Public Economics, 17 (3): 307-334.

*Farrell, Joseph. 1987. “Information and the Coase Theorem,” Journal of Economic Perspectives, 1 (2): 113-129. http://www.jstor.org

Fullerton, D. and A. Wolverton. 2005. “The Two-Part Instrument in a Second-Best World” Journal of Public Economics 89: 1961-1975.

*Fullerton, D. and A. Wolverton. 1999. “The Case for a Two-part Instrument: Presumptive Tax and Performance Subsidy” in Environmental and Public Economics: Essays in Honor of Wallace E. Oates, A. Panagaria, P. Portney and R. Schwab, eds., Cheltenham, UK: Edward Elgar: 32-57. Available as NBER paper 5993.

Fullerton, D. and S. West. 2000. “Tax and Subsidy Combinations for the Control of Car Pollution,” NBER Working Paper W7774. http://papers.nber.org/papers/W7774.

*Hardin, Garren. 1968. “The Tragedy of the Commons,” Science, December.

Maskin, Eric S. 1994. “The Invisible Hand and Externalities,” American Economic Review, 84 (2): 333-337.

Rosenkranz, S. and P. Schmitz. 2004. “Can Coasian Bargaining Justify Pigouvian Taxation?” CEPR Working Paper 4263.

*Wiggins, S. and G. Libecap. 1985. “Oil Field Unitization: Contractual Failure in the Presence of Imperfect Information,” American Economic Review, 75 (3): 368-385. http://www.jstor.org

4. An Introduction to Taxation

Check the Tax Analysts’ web site: http://www.taxanalysts.com/www/freefiles.nsf/Files/Yablon.pdf/$file/Yablon.pdf for a recent collection of tax quotes.

4.1. Excess Burden

Background: Tresch (2008), Chapter 15

Auerbach, Alan J. and James R. Hines. 2001. “Taxation and Economic Efficiency,” NBER Working Paper No. 8181. http://papers.nber.org/papers/w8181.pdf

Also in Handbook of Public Economics, Volume 3, Amsterdam: North Holland.

Goulder, Lawrence H. and Roberton C. Williams III. 1999. “The Usual Excess Burden Approximation Usually Doesn’t Come Close,” NBER Working Paper No. 7034. http://papers.nber.org/papers/w7034.pdf

Harberger, Arnold C. “Three Basic Postulates for Applied Welfare Economics: An Interpretive Essay,” Journal of Economic Literature 9:3 (1971), 785-797. http://jstor.org

*Hausman, J.A. 1981. “Exact Consumer’s Surplus and Deadweight Loss,” American Economic Review, 71 (4): 662-676. http://www.jstor.org

Hines, Jr., J.R. 1999. “Three Sides of Harberger Triangles,” Journal of Economic Perspectives, 13 (2): 167-188.

Tresch (2002), Chapter 13, 401-429.

Rosen, Harvey S., “The Measurement of Excess Burden with Explicit Utility Functions,” Journal of Political Economy 86:2 (1978), S121-S135. http://jstor.org

Goulder, L.H. and R.C. Williams. 2003. “The Substantial Bias From Ignoring General Equilibrium Effects in Estimating Excess Burden, and a Practical Solution,” Journal of Political Economy, 111 (4): 898-927.

*Willig, Robert, “Consumer’s Surplus Without Apology,” American Economic Review 66:4 (1976): 589-597. http://jstor.org

4.2. The Welfare Cost of Taxation

Anderson, James E. 1996. “Trade Reform With a Government Budget Constraint,” NBER Working Paper No. 5827. http://papers.nber.org/papers/w5827.pdf

Ballard, C.L., J.B. Shoven and J. Whalley. 1985. “General Equilibrium Computations of the Marginal Welfare Cost of Taxation,” American Economic Review, 75 (1): 128-138. http://www.jstor.org

*Browning, E.K. 1987. “On the Marginal Welfare Cost of Taxation,” American Economic Review, 77 (1): 11-23. http://www.jstor.org

*Browning, E.K. 1976. “The Marginal Cost of Public Funds,” Journal of Political Economy, 84 (2): 283-298. http://www.jstor.org

Fullerton, D. 1991. “Reconciling Recent Estimates of the Marginal Welfare Cost of Taxation,” American Economic Review, 81 (1): 302-307.

Kleven, H.J. and C.T. Kreiner. 2003. “The Marginal Cost of Public Funds in OECD Countries: Hours of Work vs. Labor Force Participation,” CESifo Working Paper No. 935.

Stuart, C. 1984. “Welfare Costs per Dollar of Additional Tax Revenue in the United States,” American Economic Review 74 (3): 352-362. http://jstor.org

5. Optimal Taxation

Background: Tresch (2008), Chapter 16

Atkinson, A. and N. Stern. “Pigou, Taxation, and Public Goods,” Review of

Economic Studies, 41 (1): 119-128. http://www.jstor.org

Diamond, P. and J. Mirrlees. 1971. “Optimal Taxation and Public Production I:

Production Efficiency,” American Economic Review, 61 (1): 8-27. http://www.jstor.org

Diamond, P. and J. Mirrlees. 1971. “Optimal Taxation and Public Production II:

Tax Rules,” American Economic Review, 61 (3): 261-278. http://www.jstor.org

*Diamond, P. 1975. “A Many-Person Ramsey Tax Rule,” Journal of Public

Economics, 4: 335-342.

Giertz, Seth. 2004. “Recent Literature on Taxable Income Elasticities,” CBO Technical Paper 16 (December). Washington D.C.: Congressional Budget Office.