THE UNIVERSITY OF WISCONSIN
Department of Economics
Econ 441: Analytical Public Finance
Spring 1998 - Professor James Andreoni
NOTE: NEW LOCATION --- ROOM 6240 SOCIAL SCIENCE, TT 9:30-10:45.
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, Fourth Edition, Irwin 1995.
There will also be required reading from academic journals. Many of these are available for download below (marked PDF or 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 a midterm exam, a final exam, and a short paper. The midterm will be given on March 5, in class. The midterm will count 35% of your grade, the final will count 45%, the paper will count 20%. There will also be occasional homeworks, which will be read but not factored into your grade directly.
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.
On the following page is an outline of the subjects to be covered.
INTRODUCTION
A. Background (Rosen, Chapters 1, 2 )
B. Welfare Economics (Rosen, Chapters 3, 4 )
PART I: IS THERE A ROLE FOR THE GOVERNMENT?
A. Market Failure
Public Goods (Rosen, Chapter 5)
Externalities (Rosen, Chapter 6)
Joe Farrell, "Information and the Coase Theorem." Journal of Economic Perspectives, Fall 1987. Article
Hal Varian, "A Solution to the Problem of Public Goods and Externalities." American Economic Review, 1994
Tragedy of the Commons (Rosen, Chapter 7)
B. Public Choice (Rosen, Chapter 7)
PART II: GOVERNMENT EXPENDITURES
A. Redistribution (Rosen, Chapter 8)
Economic Report of the President, 1997, Chapter 5 "Inequality and Economic Rewards." PDF
B. Poverty Programs (Rosen, Chapter 9)
Neil Bruce and Michael Waldman, "Transfers In-kind: Why they can be Efficient and Non-Paternalistic." American Economic Review, December 1991. Article
C. Social Security and Unemployment Insurance (Rosen, Chapter 10)
D. Health Care (Rosen, Chapter 11)
Larry Summers, "Some Simple Analytics of Mandated Benefits." American Economic Review, May 1989, 177-183. Article
E. Cost-Benefit Analysis (Rosen, Chapter 12)
Joel Waldfogel, "The Deadweight Loss of Christmas." American Economic Review, December 1993.
PART III: TAXATION
A. What is a Good Tax?
Tax Incidence (Rosen, Chapter 13)
Equity and Efficiency (Rosen, Chapters 14, 15)
B. The U.S. Tax System
Personal Income Taxes (Rosen, Chapter 16, 17)
Corporation Taxes (Rosen, Chapter 18)
Deficit Finance (Rosen, Chapter 19)
Consumption and Wealth Taxation (Rosen, Chapter 20)
State and Local Taxation (Rosen, Chapter 21)
