Master Advanced Module: Public Economics
Aim of the course:
This course aims at familiarizing students with the economics of the public sector. Governments nowadays play an important role in all western economies. Beneath being in charge for
a huge regulatory structure, the public sector makes substantial expenditure. This expenditure
is financed mainly by taxes on personal and corporate income, goods and services as well as
property.
In this course we try to answer the question under which circumstances and how the government should intervene in market activities. We therefore analyze what are the prerequisites for
markets to deliver Pareto efficient outcomes and discuss what may happen when some of these prerequisites are not fulfilled. In addition we will find out that free market equilibria can
generate a substantial amount of inequality, which may not be socially desirable. In such situations, an intervention of the government can improve economic efficiency and/or lead to
more equality.
Outline:
1. Introduction
2. Theory of the Government
a. A Simple General Equilibrium Model
b. External Effects
c. Public Goods
3. Taxation
a. The Burden of Taxation
b. Tax Incidence Analysis in Partial Equilibrium
c. Tax Incidence: Extensions
d. Optimal Taxation I: Indirect Taxes
e. Optimal Taxation II: Direct Taxation
f. Taxation: From Theory to Practice
General Readings:
1. Hindriks, J. and G.D. Myles (2013): Intermediate Public Economics, second edition,
MIT Press.
2. Silvestre, J. (2012): Public Microeconomics: Efficiency and Equity in Public Policy,
Edward Elgar.
3. Salanié, B. (2012): The Economics of Taxation, 2nd edition, MIT Press.
Specific Papers and Books by Topic:
§
General Equilibrium Theory
o Mas-Colell, Whinston and Green(1995): Microeconomic Theory, Oxford University Press.
§
External Effects
o Brookshire, D.S., M.A. Thayer, W.D. Schulze and R.C. d’Arge (1982): Valuing
Public Goods: A Comparison of Survey and Hedonic Approaches, American Economic Review 72(1), 165-177.
o Chay, K. and M. Greenstone (2003): Air Quality, Infant Mortality, and the Clean
Air Act of 1970, MIT Department of Economics Working Paper No. 04-08 .
o Chay, K.Y. and M. Greenstone(2005): Does Air Quality Matter? Evidence from
the Housing Market, Journal of Political Economy 113(2), 376-424.
o Diamond, P.A. and J.A. Hausman (1994): Contingent Valuation: Is Some Number
Better than No Number?, Journal of Economic Perspectives 8(4), 45-64.
o Edlin, A.S. and P. Karaca-Mandic (2006): The Accident Externality from Driving,
Journal of Political Economy 114(5), 931-955.
o Weitzman (1974): Prices vs. Quantities, Review of Economic Studies 41(4), 447491.
§
Public Goods
o Andreoni, J. (1990): Impure Altruism and Donations to Public Goods: A Theory of
Warm-Glow Giving, Economic Journal 100(401), 464-477.
o Andreoni, J. and A.A. Payne(2003): Do Government Grants to Private Charities
Crowd Out Giving or Fund-raising?, American Economic Review 93(3), 792-812.
o Andreoni, J. and A.A. Payne (2011): Is crowding out due entirely to fundraising?
Evidence from a panel of charities, Journal of Public Economics 95, 334-343.
o Bergstrom, T., L. Blume and H. Varian (1986): On the Private Provision of Public
Goods, Journal of Public Economics 29, 25-49.
o Falk, A. (2007): Gift Exchange in the Field, Econometrica 75(5), 1501-1511.
o Gerber, A.S. and D.P. Green and C.W. Larimer (2008): Social Pressure and Voter
Turnout: Evidence from a Large-Scale Field Experiment, American Political Science Review 102(1), 33-48.
o Glazer, A. and K.A. Konrad(1996): A Signaling Explanation for Charity, American Economic Review 86(4), 1019-1028.
o Hungerman, D.M.(2005): Are church and state substitutes? Evidence from the
1996 welfare reform, Journal of Public Economics 89, 2245-2267.
o Marvell, G. and R.E. Ames(1981): Economists free ride, does anyone else?, Journal of Public Economics 15(3), 295-310.
o Stigler, G.J. and G.S. Becker (1977): De Gustibus Non Est Disputandum, American Economic Review 67(2), 79-90.
§
Tax Incidence Analysis
o Chetty, R. (2009): Sufficient Statistics for Welfare Analysis: A Bridge Between
Structural and Reduced-Form Methods, Annual Review of Economics 1, 451-488.
o Chetty, R., A. Looney and K. Kroft (2009): Salience and Taxation: Theory and
Evidence, American Economic Review 99, 1145-1177.
o Evans, W.N., J.S. Ringel and D. Stech (1999):Tobacco Taxes and Public Policy to
Discourage Smoking, in: J.M. Poterba, Tax Policy and the Economy, Vol. 13, MIT
Press.
o Harberger, A. (1962): The incidence of the corporation tax, Journal of Political
Economy 70, 215-240.
o Kotlikoff, L.J. and L.H. Summers(1987): Tax Incidence, in: A.J. Auerbach and M.
Feldstein, Handbook of Public Economics, Vol. II, Elsevier.
o Shoven, J. and J. Whalley (1972): A general equilibrium calculation of the effects
of differential taxation of income from capital in the US, Journal of Public Economics 1, 281-321.
§
Optimal Indirect Taxation
o Diamond, P. (1975): A many-person Ramsey tax rule, Journal of Public Economics 4, 335-342.
o Diamond, P. and J. Mirrlees (1971): Optimal Taxation and Public Production. II:
Tax Rules, American Economic Review 61, 261-278.
o Golosov, M. and A. Tsyvinsky(2008): Optimal Fiscal and Monetary Policy (with
commitment), The New Palgrave Dictionary of Economics, 2nd edition, PalgraveMacMillan.
o Hotelling, H. (1932): Edgeworth’s taxation paradox and the nature of demand and
supply functions, Econometrica 40, 577-616.
o Ramsey, F. (1927): A Contribution to the Theory of Taxation, Economic Journal
37, 47-61.
o Samuelson, P. (1986): Theory of Optimal Taxation, Journal of Public Economics
30, 137-143.
§
Optimal Direct Taxation
o Ebert, U. (1992): A reexamination of the optimal nonlinear tax problem, Journal
of Public Economics 49, 47-73.
o Edgeworth, F. (1897): The Pure Theory of Taxation, III, Economic Journal 7,
550-571.
o Lockwood, B. and M. Weinzierl (2015): De Gustibusnon est Taxandum: Heterogeneity in preferences and optimal redistribution, Journal of Public Economics
124, 74-80.
o Mirrlees, J. (1971): An Exploration in the Theory of Optimal Income Taxation,
Review of Economic Studies 38, 175-208.
o Mirrlees, J. (1990): Taxing Uncertain Incomes, Oxford Economics Papers 42, 3445.
o Piketty, T. (1997): La redistribution fiscale face au chômage, Revue Francaise
d’Économie 12, 157-201.
o Samuelson, P. (1986): Theory of Optimal Taxation, Journal of Public Economics
30, 137-143.
o Stiglitz, J. (1982): Self-Selection and Pareto Efficient Taxation, Journal of Public
Economics 17, 213-240.
§
Taxation: From Theory to Practice
o Alvaredo, F., T. Atkinson, T. Piketty, E. Saez and G. Zucman (2016): The World
Wealth and Income Database, http://www.wid.world.
o Bach, S., G. Corneo und V. Steiner (2012): Optimal top marginal tax rates under
income splitting for couples, European Economic Review 56, 1055-1069.
o Badel, A. and M. Huggett (2014): Taxing Top Earners: A Human Capital Perspective, Federal Reserve Bank of St. Louis Working Paper Working Paper 2014017B.
o Diamond, P. and E Saez (2011): The Case for a Progressive Tax: From Basic Research to Policy Recommendations, Journal of Economic Perspectives 25, 165190.
o Jaimovich, N. and S. Rebelo (2014): Non-linear Effects of Taxation on Growth,
Working Paper.
o Jones, C.I. and J. Kim (2015): A Schumpeterian Model of Top Income Inequality,
Working Paper.
o Kindermann, F. and D. Krueger (2014): High Marginal Tax Rates on the Top 1%?
Lessons from a Life Cycle Model with Idiosyncratic Income Risk, NBER Working
Paper No. 20601.
o Kleven, H.J., C. Landais and E. Saez (2013): Taxation and International Migration
of Superstars: Evidence from the European Football Market, American Economic
Review 103, 1892-1924.
o Kleven, H.J., C. Landais, E. Saez and E. Schultz (2014): Migration and Wage
Effects of Taxing Top Earners: Evidence From the Foreigners? Tax Scheme in
Denmark, Quarterly Journal of Economics 129, 333-378.
o Piketty, T., E. Saez and S. Stantcheva (2014): Optimal Taxation of Top Labor Incomes: A Tale of Three Elasticities, Americal Economic Journal: Economic Policy
6, 230-271.
o Saez (2001): Using Elasticities to Derive Optimal Tax Rates, Review of Economic
Studies 68, 205-229.