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Public
Economics Web Syllabus and Notes Econ 441 WVU, Fall 2024 Professor Roger D. Congleton |
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Office: 4131
Reynolds Hall Office Hours: W and Th - 2:30-3:30 and by appointment E-Mail: roger.congleton@mail.wvu.edu (the most reliable contact method) Website: rdc1.net |
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Suggested Texts:
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PDF Syllabus |
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Holcombe, R. (2005) Public Sector Economics: The
Role of Government in the American Economy. NY:
Prentice Hall.
Hillman, A. L. (2019) Public Finance and Public Policy, Responsibilities and Limitations of Government. (third edition) Cambridge: Cambridge University Press. (Either the first [AH1] or second edition [AH2] is fine. AH3 below refers to chapters in the third edition, AH2 to chapters in the second edition.) |
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Main Text: |
Online Class Notes: The
most recent versions are available via this website,
backups available at the course's WVU E-Campus site
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Overview. Undergraduate
public economics is a theory course, but one with many
applications to public policies. The course is divided
into 4 parts. The first explores the economic effects of public policies on the private economy, focusing most of its attention on the effects of taxes and subsidies on competitive markets for pure private goods. Such markets tend to be "efficient" in the sense that market outputs maximize social net benefits. Taxes on such markets tend to reduce social net benefits unless the revenues on spent on services with a greater value than those taxed. Subsidies on those markets tend to reduce social net benefits in two ways, through direct effects and also sthrough effects generated by the taxes used to finance them.. The second part focuses on choice settings in which private markets are less likely to produce outcomes that maximize social net benefits. There are spectrums of types of goods and types of actvities. Some goods are inherently "unshareable," but not all goods have that property. Others are perfectly shareble, while still others lie between those extremes. Similarly, some activities affect only the persons directly involved in them and others have effects on others who are not directly involved. Market outputs of goods are shareable (public goods and club goods) are often below the social net benefit maximizing level. In contrast, market outputs where an activity imposes costs on others not involved in that activity (external costs) tend to be greater than that which maximizes social net benefits. In either case, in principle, social net benefits can potentially be increased by altering private incentives. The thrid part of the course uses sthe rational choice model to model how public polcies are chosen when they are driven by votes. It turns out that policies chosen by majority rule do not necessarily maximize social net benefits, although they may improve on market outcomes in cases in which externality or public goods problems exist. The latter is relevant for voter choices about which public policies governents should pursue. The last part of the course provides an overview of some large-scale public programs and problems confronted by the United States and other Western governments. The course uses rational choice models to demonstrate the logic of these propositions and results. Thus, much of the course is focused on microeconomic tools--e.g. diagrams of various kinds that have to be fully understood to do well in the course.. |
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Date |
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8/22, 8/27 |
Introduction:
Why Study Public Economics? Growth of Government and
Taxation in the United States and OECD countries, changing
composition of, increasing centralization and regulation.
Methodology
of Public Economics: Positive and Normative
Analysis. Positive and normative analysis in
public economics: Cost-Benefit Analysis, the Pareto
principles. The rational choice approach to choice and
social science.
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8/29, 9/3 |
Review of
Economic Tools: The Net Benefit Maximizing
Model of human choice, applied to demand and
supply, consumer surplus and profit, efficiency of
competitive markets. (Quiz 1)
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Part I: Market Responses to
Government Policies |
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9/5, 9/19 |
Principles
and Effects of Taxation: Positive Analysis:
Impact of taxes on market prices and output. Normative:
deadweight loss in the long and short run; neutral taxes
and excess burden; Ramsay taxation, progressive and
proportional income taxes and the labor-leisure tradeoff.
Applications: property taxes, excise taxes, head taxes,
and income taxes. Tax
Data: Overviews (WP table of effects of Taking
Stock
of Recent Economic Policies (WSJ, Schultz et al)
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H: 2, 10, 11, 12, 13 AH3: 1, 8 AH2: 4.1, 4.2, and 9.1 US Tax History / Wiki State Tax Burdens |
9/24, 9/26 |
Principles
and Effects of Subsidies: Impacts of subsides
on market equilibria, deadweight losses in the long and
short run, conditional marginal and lump sum subsides.
Normative issues. Applications: farm subsidies, food stamps,
rent subsidies, public education, and unemployment
insurance. Data
from
the Statistical Abstract of the United States
(Quiz
2) |
H: 5, 8 AH3: 2.1, 5.2 AH2: 2.1, 5.1 |
Part II: Market Failures to
Maximize Social Welfare in Particular Markets and
Governmental Solutions |
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10/1, 10/3 |
Why Governments
are Useful: Externality Problems and Solutions.
Externalities and Market Failures, Coasian Contracts,
Pigovian taxes and subsidies. Applications: noise, air and
water pollution, global warming, pandemics. Are Carbon taxes
Pigovian taxes? (Quiz 3) |
H: 4, 5
AH3: 3, 4
AH2: 3.1, 5.1, 5.2, 5.3 |
10/8 | Discussion and Review for the First Exam |
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10/10
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First Examination
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10/15 |
Exams returned and Reviewed |
Paper Topics |
10/17, 10/22 |
Why Governments are Useful: Public
Goods and Solutions. Public and Private Goods,
the free rider problem; Pareto optimal supply of public
goods, Samuelsonian and Lindahl Taxes; Consensus-inducing
property of Lindahl taxes. The demand revelation problem..
Applications: gasoline taxes as Lindahl taxes, use fees and
national parks, air quality, national defense,
gravity. (Quiz 4) |
H: 4, 5
AH3: 3, 4
AH2: 1.1, 3.1, 5.1, 5.2, 5.3
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Part III: Public Policy
Formation in Democracies |
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10/24, 10/31 | Policy
Making in Democratic Polities: The Electoral Demand for
Public Goods and Taxes. The median voter model
and the demand for public services. Convergence to median
voter ideal point(s). Dynamics of public policy caused by
changes in median voter circumstances or knowledge. Rational
ignorance and fiscal illusion. Government Failures. (Quiz 5) |
H: 7
AH2: 6.1, 6.2 |
11/5 |
Election Day No
Class |
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11/7 |
Interest
Groups and Public Policy: Olson's Model of
Collective Action, Stigler's Capture model, Rent-Seeking
Losses, Bureaucracy as a Special Interest Group. Why are
some groups more influential than others?
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AH3: 1.4,
2, 12, B.2
AH2: 2.1, 2.2, 2.3 |
11/12 |
Public
Finance and Relationships Between Governments:
Fiscal Federalism, Decentralized Policy Making,
Intergovernmental externalities, Conditional grants,
Revenue sharing. The Tiebout Model of intergovernmental
competition: voting with one's feet, Yardstick
competition. Applications: the decentralization theorem,
subsidiarity principle, capital flight. (Pew
on
Central Gov as Source of State Revenues.)
(Quiz 6)
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H: 24 AH3: 9.1 AH2: 9.3 |
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Part IV: Public Economics
and the Welfare State, Current US Policy Problems |
Paper Topics |
11/14
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The Welfare State 1: Tax-Financed Social
Insurance for Ordinary Voters. The demand
for private insurance. Cases in which the median voter
prefers tax-financed government insurance to private
insurance. Medicare and Obamacare (ACA). The simple
politics of governmental insurance programs. Subsidies
vs government provision of insurance services. OECD
healthcare spending Why Doctors are Paid So Much (Man
Inst)
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11/19 |
The Welfare State 2: Social
Security and Medicare. Application of tools
developed in the course to analyze OASDI: nature of tax,
the tax burden(s), as subsidies for retirement and
healthcare, the median voter model and average benefit
levels. History of OASDI, the lock box myth, future of
program. Medicare grows faster than the retirement
benefits because of technological change, this makes its
future deficits more difficult to overcome. Aging of the
median voter and the electoral support for social security
and medicare.Future taxes and/or deficits. Supplemental
References and resources: Social Security Annual Report ,
Medicare Annual Trustiees Report,
OASDI
History, Medicare
Reforms, (Feldstein
on reform), OECD
healthcare spending, (brookings
proposals for reform)
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H 20 , AH2: 8 AH3: 7, 8 RJ Samuelson Prerecorded Lecture (Social Security 2) |
11/21 |
Deficits Finance and Reform:
Debt
Finance as Intertemporal Taxation Government
debt for revenue smoothing, government debt as an
inter-generational transfer, government debt and fiscal
illusion. Ricardian equivalence, the politics of deficits
and debt, Entitlement deficits and national debt. Supplemental
References and resources: Deficts. (Gross
National Debt), (Debt
Held byPublic) (Quiz 7) |
Study
Guide II Prerecorded Lectures (1) Rationalizing Deficits (2) History and Evidence |
11/22-27 | Fall Recess/Thanksgiving Break | |
12/3 |
Review for Second Exam | |
12/5 |
Second Examination | |
12/10 |
Exams Returned and Reviewed |
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12/10 | Forest From Trees Lecture / paper workshop | Paper Format |
Paper Topics | ||
12/18
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Research Paper
Due at Midnight via Email (see Paper Topics for a
description)
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Grades are based on 2 exams (30%
each), a final paper (26%), and 7e-campus quizes (2 %
each)--with a bonus for helpful class participation. |
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Institutional
Policies
and Services: Students
are
responsible for reviewing policies on
inclusivity, academic integrity, incompletes, sale of
course materials, sexual misconduct, adverse weather, as
well as student evaluation of instruction, and days of
special concern/religious holiday statements.
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Link to WVU
Policies and Syllabus Addenda
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