Econ 441: Analytical Public Finance

THE UNIVERSITY OF WISCONSIN-MADISON

Department of Economics
Fall 2004
Professor James Andreoni    andreoni@wisc.edu
Teaching Assistant:  Brad Caruth: brcaruth@wisc.edu 
Class webpage: http://www.ssc.wisc.edu/~andreoni/Econ441/
Brad's TA Web: https://mywebspace.wisc.edu/brcaruth/web/school.html

A. COURSE DESCRIPTION

B. COURSE OUTLINE

C. HOMEWORK ASSIGNMENTS

D. RESEARCH PAPER

E. INTERESTING LINKS FOR PUBLIC FINANCE

A. COURSE DESCRIPTION

Public Finance is the branch of economics that studies the role of the public sector in the economy. In this course we will study the intellectual foundations that justify the existence of the public sector, and the economic theory that describes what the role of the public sector should be. We will then look at what the U.S. public sector actually does, and how it meets or fails to meet its goals.

Prerequisites:

Intermediate Microeconomics 301 (or 311) is an essential prerequisite for this course. The course will assume a competency at roughly the level of intermediate books like Varian, or Frank. It will be a good idea to keep your intermediate microeconomics textbook close at hand while studying for this course.

Texts:

The main text is: Rosen, Harvey S., Public Finance, Seventh Edition, Irwin 2005.

There will also be required reading from academic journals. Many of these are available for download below (marked Article). A great deal of material that is not in the text will be presented in the lecture.

Exams, Papers and Grades:

The course will require two midterm exams and a short paper. The midterms will be given on October 14, in class, and 2:45 P.M. Friday, December 17 during the summary period. The midterms will count 40% of your grade each, and the paper will count 20%. There will also be occasional homeworks.  These will be "lightly graded."  Good performance on these may make a difference in determining the cut-offs between grades

For the paper you must choose a proposed or legislated government policy to write about. The paper must describe the policy and provide an economic analysis of it. This could include a description of how the policy may affect economic behavior, such as labor supply, savings, educational attainment, capital investment, or employment. You may also discuss the aspects to be considered when conducting cost-benefit analysis. The paper should be no longer than five pages, and will be due near the end of the term.

Office Hours:

Professor Andreoni: Room 7434 Social  Science, Wednesday 10:30-11:45, and by appointment. 
TA:  Brad Caruth, 6435 Social Science, Wednesday 12:00-1:00 p.m.   Thursday 2:15-3:15 p.m.
     see his web page for additional information, also email brcaruth@wisc.edu

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B. COURSE OUTLINE

INTRODUCTION

A. Background (Rosen, Chapters 1, 2 )

B. Welfare Economics (Rosen, Chapters 3 )

PART I: IS THERE A ROLE FOR THE GOVERNMENT?

A. Market Failure

Public Goods (Rosen, Chapter 4)

Externalities (Rosen, Chapter 5)

Tragedy of the Commons (Rosen, Chapter 6)

B. Public Choice (Rosen, Chapter 6)

Hal Varian, "A Solution to the Problem of Externalities When Agents are Well Informed." American Economic Review, 1994. Article

PART II: GOVERNMENT EXPENDITURES

A. Redistribution (Rosen, Chapter 7)

Neil Bruce and Michael Waldman, "Transfers In-kind: Why they can be Efficient and Non-Paternalistic." American Economic Review, December 1991. Article

B. Poverty Programs (Rosen, Chapter 8)

Rebecca Blank, "Fighting Poverty: Lessons from Recent U.S. History," Journal of Economic Perspectives, Spring 2000, 3-19. Article

C. Social Security and Unemployment Insurance (Rosen, Chapter 9)

D. Health Care (Rosen, Chapter 10)

Laurence Summers, "Some Simple Economics of Mandated Benefits." American Economic Review, May 1989, 177-183. Article

Ronald Lee and Jonathan Skinner, "Will Aging Baby Boomers Bust the Federal Budget?" Journal of Economic Perspectives, Winter 1999, 117-40. Article

E. Cost-Benefit Analysis (Rosen, Chapter 11)

Joel Waldfogel, "The Deadweight Loss of Christmas." American Economic Review, December 1993. Article

PART III: TAXATION

A. What is a Good Tax?

Tax Incidence (Rosen, Chapter 12)

Equity and Efficiency (Rosen, Chapters 13, 14)

B. The U.S. Tax System

Personal Income Taxes (Rosen, Chapter 15, 16)

Corporation Taxes (Rosen, Chapter 17)

Deficit Finance (Rosen, Chapter 18)

Consumption and Wealth Taxation (Rosen, Chapter 19)

State and Local Taxation (Rosen, Chapter 20)

C.  State and Local Taxation (Rosen, Chapter 20)

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C. HOMEWORK ASSIGNMENTS

See the TA web-site

D. RESEARCH PAPER

RESEARCH PAPER PROPOSAL DUE NOVEMBER 4

RESEARCH PAPER DUE DECEMBER 2

Research Paper:

For the paper you must choose a proposed or legislated government policy to write about. The paper must describe the policy and provide an economic analysis of it. This could include a description of how the policy may affect economic behavior, such as labor supply, savings, educational attainment, capital investment, or employment. You may also discuss the aspects to be considered when conducting cost-benefit analysis. The paper should be no longer than five pages.

Finding a Topic.

There are several sources you could use to find a topic. One is simply to follow the policy debates in the newspapers and magazines. Second is to look at the policies discussed in the textbook for the course. A third way is to browse through recent issues of economic policy journals, or the web pages of research and policy institutions.

Some journals you could browse at the library are:

• National Tax Journal
• Journal of Economic Perspectives
• Journal of Public Policy and Management
• Journal of Public Economics

Here are some links to some sites that might prove useful:

• The Economist
• Brookings Institution, Washington, D.C.
• Brookings Policy Briefs
• Brooking Economics Studies
• Urban Institute
• Research Page See reports and research on dozens of public economics topics 
• Urban-Brookings Tax Policy Center 
• This combines some of Brookings and Urban Institute publications 
• National Bureau of Economic Research, Research Papers
• Choose Public Economics or perhaps Aging, Children, Education, Health or Law and Econ
• Institute for Research on Poverty (IRP)
• See Publications for Focus (their policy publication), Discussion Papers, or Special Reports

Other links that could prove useful in your research are listed at the end of the web page.

Sample Topic Ideas.

Here are some examples of topics. Feel free to choose from these or find your own:

• The arguments for taxing cigarettes or alcohol.
• How big is the problem of welfare dependence?
• Should the government provide day care?
• How will the President's plan for day care affect labor supply of parents? wages of parents?
• What is the effect of the charitable deduction on charitable giving?
• How does the Earned Income Tax Credit affect labor supply? or income? or education?
• Does the "marriage tax" affect marital decisions?
• Do IRA savings incentive increase savings?
• How do balanced budget rules affect state's economies?
• Is the corporate income tax a good idea?
• Should the government subsidize higher education?
• Should the government mandate universal health insurance?
• and many many more.

For more ideas on paper topics, with citations, go here

Writing a Proposal.

Everyone must submit a one-page Paper Topic Proposal. The proposal should contain the following:

1. Topic: Once sentence describing the topic or question that you will address in your paper.
2. Description: One paragraph describing in more detail what you will do in the paper, such as develop an economic model to analyze the question, or present evidence from published research to address a question.
3. Citation of Main Reference: List the complete reference (author, title, source, year) that you will be using as the basis of your research for the term paper.

Paper topic proposals are due October.

Final Drafts Due December 2.

Final drafts are due in class on December 2. Paper must be no longer than 5 pages.

Outlines and Early Drafts Welcome.

If you prepare your draft early and you would like preliminary comments from me, please arrange that with me a few days in advance and I will be happy to look at your paper. Note, I will only look at drafts of the completed paper, not sections or very rough drafts. Also, if you would like to discuss an outline for your paper before you begin writing, please type up your outline and make an appointment to see me.

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E. INTERESTING LINKS FOR PUBLIC FINANCE:

Government

• The White House
• Council of Economic Advisers
• Economic Report of the President 2002
• Federal Reserve, Board of Governors
• IRS - The US Treasury
• U.S. Department of Labor
• Bureau of Labor Statistics
• Department of Housing and Urban Development

Journals

• Journal of Public Economics

Data

• Economic Time Series Page
• 2000 Green Book: Overview of Entitlement Programs

Research Institutes, Working Papers

• Institute for Research on Poverty (IRP)
• Social Systems Research Institute (SSRI), UW
• Brookings Institution, Washington, D.C.
• Brookings Policy Briefs
• Urban Institute
• NBER Research Papers (Choose Public Economics or perhaps Aging, Child Welfare, Health)

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