Public Finance
Peking University Graduate School of Business
Fall 2010 / Module 1
EE and FE
Instructor: Dr. Estelle Dauchy
Assistant Professor in Economics
Email: Estelle.dauchy@szpku.edu.cn
Office Hours: Tuesday 9-11 AM and on demand
Teaching Assistant: TBC
Overview:
Public finance (also known as public economics) studies the economics of government taxation and redistribution in market economies, in theory and practice. We will analyze the reason for government interventions in a market economy, as well as the impact of alternative government interventions on economic outcomes. Public economics include two primary topics of analysis: government expenditures and taxation. This course covers both topics, with a focus on the impact of government intervention on the relevant agents: consumers, workers, and businesses. The class will also briefly present different tax systems in different parts of the world, and discuss ongoing debates for reform.
In this course, you will learn how to interpret economic analyses and how to use the tools of microeconomics and empirical analysis to investigate and predict the effects of public expenditures, regulation and government revenue-raising activities.
Although not mandatory, this class will provide you with the necessary background for its companion class taught in the second semester: “public finance and business strategy.”
Course description:
1. To study the need and role of governments in a market economy.
2. To gain a deep theoretical and empirical understanding of the two main roles of governments: taxation of economic actors and redistribution of available resources.
3. In addition to market failures, to study government failures in theory and practice, such as the behavioural impact of public intervention on economic agents.
4. To review some of the most important debates on taxation and fundamental tax reforms in different parts of the world, and introduce their potential impact on economic actors.
This class is a highly recommended to students interested in taking the class offered in the second semester: “Taxation and business strategy”.
Prerequisites:
For this class, you are required to have passed “microeconomics” with at least a “C”, and “mathematics for economists” with at least a C. Students with background in statistics and/or econometrics will find this class more accessible. Basic knowledge of econometric software such as Stata and Sas is highly recommended.
Readings:
Required readings are preceded by a star *. Optional but highly recommended readings will be preceded by a #. Other readings will not be preceded by anything.
· Textbook and other readings (TBA):
*Jonathan Gruber, Public Finance and Public Policy, 3rd ed. Worth Publishers, Second Edition 2008.
# Jean Hindriks and Gareth D. Myles, Intermediate Public Economics, 6th ed., MIT Press, 2006.
# Rosen, Harvey and Ted Gayer, Public Finance, 9th ed., McGraw-Hill, 2010.
# Stiglitz, Joseph E., Economics of the Public Sector, 3rd ed., W. W. Norton & Company, 2000.
Most of these textbooks will be available for consultation in my office. The required textbook should be purchased directly (please follow the following instructions):
How to purchase the required textbook: You can purchase Jonathan Gruber’s book either on amazon or at a discount through the Guangzhou office of the publisher. Please contact me by Wednesday September 2 at 2PM if you chose this cheaper option.
· Other required and optional readings (from journal articles and newspapers):
May be assigned at the end of each lecture.
Grading:
· Assignments:
Seven assignments will be distributed, which consist of problem sets or short essays. Problem solving will include theory and case studies. Students are strongly encouraged to discuss their weekly assignments in small groups of no more than 2 or 3, each student should return his/her own assignment. Assignments will be distributed and returned each Friday.
The last assignment might be replaced or complemented by a debate in class based on current events (most likely on tax reform). This in-class simulation may divide the class in three groups: businesses, lobbyists, and policy-makers.
· Exams:
There will be a mid-term exam (30%), and a final exam (40%). Review sessions will be organized before each exam. In order to benefit from the review sessions, students should have reviewed the material before the review sessions and prepare their questions.
Assignments 30%
Midterm Test 30%
Final Examination 40%
Lecture Schedule:
Date | Lecture | Reading |
8/31 | 1 | Gruber-Chap 1&2 |
9/2 | 2 | Gruber-Chap 5&6 |
9/3 | SECTION (TBC) | |
9/7 | 3 | Gruber Chap 7 |
9/9 | 4 | Gruber Chap 8 |
9/10 | SECTION (TBC) | |
9/14 | 5 | Gruber Chap 9 |
9/16 | 6 | Gruber Chap 10 |
9/17 | SECTION (TBC) | |
9/21 | 7 | Gruber Chap 11 |
9/23 | 8 | Gruber Chap 12,14,16 |
9/24 | SECTION (TBC) | |
9/28 | 9 | Gruber Chap 18 |
9/30 | 10 | Gruber Chap 19 |
10/1 | SECTION (TBC) | |
10/12 | 11 | Gruber Chap 20 |
10/14 | 12 | Gruber Chap 21 |
10/15 | SECTION (TBC) | |
10/19 | 13 | Gruber Chap 22,23 |
10/21 | 14 | Gruber Chap 24 |
10/22 | SECTION (TBC) | |
10/26 | 15 | |
10/28 | 16 | TBA |
10/29 | SECTION (TBC) | |
11/2 | 17 | TBA |
11/4 | 18 | TBA & Gruber Chap 25 |
11/5 | SECTION (TBC) |
Course Outline:
Part 1: Introduction to Public Finance (Lecture 1)
· Presentation; Course Overview;
· Introduction to Public Finance and Background
Parts 2: Externalities, Public Goods and Public Choice; Layers of Governments; Social Insurance
· Market failures: definition, formalization, government role; Externalities: Theory; Private and Public Solutions; 2 Applications: Financial Crisis; Environmental Damages (Lecture 2)
· Public goods: Definition; Private and Public Provision; Mathematic Tools (Lecture 3)
· Cost Benefit Analysis of Private Financing of Public Projects (Lecture 4)
· Public Choice: Government Failure, Corruption, Leviathan Theory (Lecture 5)
· Fiscal Federalism and Local Public Finance (Lecture 6)
· Applications to 2 Important Sectors: Education and National Defense (Lecture 7)
· Social Insurance (Lecture 8)
Part 3: Taxation in Theory and Practice
· Introduction to Taxation: Tax Systems Around the World; Criteria for Evaluating Tax Systems: Fairness, Efficiency, Administrative Burden (Lecture 9)
· Taxes and Economic Distortions (Lecture10)
· Taxation of Consumption and Income in Theory and Practice (Lecture 11)
· Taxing Labor: How Labor Reacts to Taxes in Theory; Empirical Evidence; Labor Incentive Mechanisms (Lecture 12)
· Issue with Income Taxation: Taxing Savings and Taxing Risk -Taking Behavior: Theory, Evidence; Incentives; Application to Retirement Savings, Entrepreneurial Activities, Innovation (Lecture 13)
· Corporate Taxation: Why Should Businesses be Taxed? Incidence of Corporate Taxes; Impact on Investment and Financing (Lecture 14)
· International Taxation of Corporations / Issues with a Global Economy: Competitiveness, Tax Havens / Evasion, Tax Treaties
· In-Class Simulation Exercise (Lecture 16)
· Tax Expenditures: What they Are, Hidden Subsidies, Transparency, Issues in Measurement (Lecture 17)
· Temporary vs. Permanent Policy; Fundamental Tax Reform: Current Debates/Options Around the World in the Face of Long Term Budget Crisis (Lecture 18)